Healthcare Practice Strategies - Fall 2013 - Smart Moves: Now Is the Time for Equipment Purchases
October 30, 2013
From cutting-edge diagnostic and therapeutic equipment to robust health information technology, there is no better time than now to invest in your practice. The cost of capital (in terms of interest rates) is at an all-time low. And there are immediate and tangible tax benefits to your purchases.
The American Taxpayer Relief Act (aka the "Fiscal Cliff Bill") increased the maximum equipment deduction limit, allowing practices that purchase qualifying new or used equipment in 2013 to immediately depreciate up to $500,000 of the cost. In addition, practices acquiring qualifying new equipment may utilize an additional 50 percent "bonus" depreciation allowance.
Understanding Accelerated Depreciation
Under current tax laws, there are a variety of means for depreciating qualifying equipment. In addition to the regular depreciation (five years) for most medical equipment, you can also choose from one of the following for an "accelerated" method of depreciation:
• Section 179 Depreciation – Use Section 179 to deduct up to $500,000 of the value of equipment during the first year of ownership. By properly using the Section 179 deduction, you can potentially decrease your tax payments and increase cash for other needs. Here's how it might look if you made a qualifying purchase:
|Total 1st Year Section 179 Tax Deduction||$300,000|
|Combined Federal & State Tax Bracket||38%|
|Total 2013 Tax Savings as a Result of Capital Expenditures||$114,000
($300,00 x 0.38)
|New Equipment Net Cost||$186,000
• Bonus Depreciation – After taking the Section 179 deduction for new equipment purchased, your practice may then be eligible to deduct an additional 50 percent of the remaining balance as a first-year "bonus" depreciation.
Ultimately, you'll want to meet with your practice CPA to decide the depreciation method that works best for you and your practice.
Harvest Some Tax Savings
Whether you are thinking about simply upgrading your office's computers and network or converting your office into a digital and chartless practice, this is definitely the year to do it, from a tax perspective. To reap these tax benefits, the equipment must be purchased and put into use between January 1, 2013, and December 31, 2013.
By the end of this year, it must be ready, available and capable of performing its function. More importantly, you must be "obligated to purchase" the technology. This means you have:
- executed a contract to pay in the future,
- created a liability (e.g., taken out a loan), or
- paid for the equipment in full.
Section 179 was designed with businesses in mind. That's why almost all types of "business equipment" qualify for the Section 179 deduction, including:
- Tangible personal property used in business
- "Off-the-shelf" software
- Office furniture
- Office equipment
- Business vehicles
As with anything related to tax deductions, there are exceptions. As you weigh your equipment purchases, keep these distinctions in mind:
• "Off-the-shelf" computer software – Software qualifies for the Section 179 deduction in the year you put it into service so long as it is not custom designed and is available to the general public.
• Business vehicles – In general, vehicles used in your business qualify for the Section 179 deduction. However, certain passenger vehicles have a total depreciation deduction limitation. Other vehicles, which by their nature are not likely to be used more than a minimal amount for personal purposes, qualify for a full deduction. There are a number of qualifications for vehicles, all with varying tax treatments.
• Used equipment – Previously owned equipment (but new to you) qualifies for the Section 179 deduction. However, used equipment does not qualify for bonus depreciation.
• Partial business use – In general, with equipment that is purchased for both business and personal use, your deduction will be based on the percentage of time you use the equipment for business purposes.
• Non-qualifying property – Some items that do not qualify for the Section 179 deduction include real property — such as land, buildings and permanent structures, including paved parking areas and fences — and heating, ventilation and air conditioning equipment.
Good News, Indeed
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year in which they put the equipment into use. This means when you buy (or lease) qualifying equipment, you can deduct the entire purchase price from your gross income up to the stated IRS limits.
Considering an equipment purchase? Our accounting professionals would be happy to run the numbers with you.
Healthcare Practice Strategies - Fall 2013