Buying equipment soon could lower your tax bill
Veterinary practices should explore IRS sections 179 and 168(k) as a money-saving tactic.
Sections 179 and 168(k) of the U.S. Internal Revenue Code can become glorious, money-saving strategies for smart veterinary practices.
Practices that need to purchase new equipment may be able to deduct the full price of qualifying equipment during the tax year in which it was placed into service if they elect to do so under Section 179. This is done instead of deducting a portion of the purchase price over five years through standard depreciation.
The strategy may benefit any practice looking to acquire more accurate tools, add a valuable service, create a more ergonomic workspace, increase skills or accommodate more patients.
For instance, let’s say a veterinary practice team has determined that a new surgical suite is a must this year. The team looks at buying new lighting, laser surgical equipment, modular casework such as cabinets, tables and shelves, patient monitoring equipment, and other related needs.
This investment could add up to a big chunk of change, right? But depending on the practice’s tax situation, the Section 179 option could help reduce the tax burden for the year.
In addition, there’s another option called Section 168(k) bonus depreciation. This allows the practice to deduct qualifying equipment purchases in the first year of service after the Section 179 limit has been reached. For 2017, practices can deduct up to 50 percent of the cost of qualified property.
Note that this amount is being reduced to 40 percent for 2018 and 2019, so 2017 is the best year to consider taking advantage of the option.
Section 179 for Tax Year 2017
For Section 179 property purchased and placed into service in 2017, the maximum total amount that can be expensed is $510,000. Practices may qualify in 2017 if they:
- Purchase less than $2,030,000 worth of equipment for the year.
- Use the placed-in-service equipment more than 50 percent of the time in the practice.
- Purchase new or used equipment that fits within these qualifying categories: machinery and equipment used in an active trade or business; furniture and fixtures used in an active trade or business; certain depreciable off-the-shelf (“canned”) computer software; and modular casework.
Section 168(k) Bonus Depreciation for Tax Year 2017
This option can be used with new equipment only, and practices may qualify if they purchase equipment fitting this description:
- Machinery and equipment used in an active trade or business.
- Furniture and fixtures used in an active trade or business.
- Certain depreciable off-the-shelf (“canned”) computer software.
- Modular casework.
- Qualified leasehold improvements.
Depending on the equipment investment for 2017, a practice may be eligible to claim both the Section 179 expense and Section 168(k) bonus depreciation. The Section 179 expense allowance is claimed first, before an additional bonus depreciation is allowed.
There’s a lot more to this, but we’re purposely keeping the details simple because all practices will need to consult a tax attorney or accountant to see if and how they qualify for these benefits. Only then can they determine if these tax strategies make sense for them in 2017.