Maximize Equipment Tax Deductions with Section 179
For many medical practices, this is one of the best tax breaks available today—Your practice doesn’t have to settle for equipment that’s depreciating over several years. With the “Section 179” deduction, you can elect to deduct machinery and equipment in one year.
The maximum Section 179 allowance for 2013 is $500,000 (unless Congress acts to change this amount).
Let’s say you spend $125,000 on equipment this year—this is what your options look like:
• With the Section 179 election: You can write off the entire $125,000 in one year, rather than depreciating it over several years. This includes medical equipment, machines, computers, copiers, fax machines, telephone systems and office furniture.
• Without Section 179: Money spent to purchase business equipment is treated as a capital expense and may have to be recovered over a period of years through depreciation or amortization.
A few restrictions:
In order to qualify for the tax break, you must use the equipment more than 50 percent of the time for business.
For 2013, if the cost of all qualifying acquisitions exceeds $2 million during one year, the deduction is reduced on a dollar-for-dollar basis.
Additionally, the amount you write off for Section 179 cannot exceed the taxable income from your business. This may be a problem for C corporations if the business zeroes out its income by paying everything in salaries, because there wouldn’t be enough income to cover the Section 179 election.
In the above case, it might be better to pay less compensation, and keep enough taxable income to cover a Section 179 election. Any excess can also carry over into future years if you run up against the income limitation.
What if your C corporation operates at a loss this year but expects a profit next year? It may be better to not take the expense this year and carry it forward, rather than depreciating equipment purchased this year over several years.
You can fully utilize the tax break this year with some thought and timing. Look around your practice toward your year-end and consider buying any equipment you may need.
As long as it is placed in service by December 31, you can deduct the equipment with Section 179. You can still write it off on this year’s tax return, even if you pay for it next year on credit.
In the case of pass-through entities (partnerships, LLCs, and S corporations), the dollar limitation rules for the Section 179 deduction apply both at the entity and the owner levels. (IRS Regulation 1.179-2) Because of this, advance planning may be necessary to maximize Section 179 deductions at the owner level, where the write-offs really count. Please consult your Polk representative for details.