Tax Benefits of Investing in Your Dental Practice

The Code Section 179 election and Bonus Depreciation offer dental practices a great opportunity to maximize purchasing power. There are incentives created by the U.S. government to encourage businesses to invest in their practice through the purchase of equipment and off-the-shelf software. Both of these options could allow practices to deduct the full purchase (or finance) price of qualifying equipment and/or software during the tax year. A high-level summary is described below.

Code Section 179 election

The Code Section 179 election has long been a way for businesses to claim immediate tax deductions, instead of depreciation deductions over time, for many purchased assets. It allows your practice to deduct the full purchase price of qualifying equipment and/or software for the current tax year up to the code limits. Most equipment and off-the-shelf software qualify for the Code Section 179 election enabling your practice to purchase needed equipment and/or software right now, instead of waiting. For more information, see qualifying product details and off-the-shelf software definition.

The annual deduction limit is $1,050,000 for tax years beginning in 2021. There are several criteria required to be met in connection with claiming a Section 179 deduction. For example, the practice must have taxable income. In addition, there is a phase-out threshold if large amounts of equipment and/or software are being placed in service in a given year. The phase-out threshold for tax years beginning in 2021 is $2,620,000. 

Important timing

To qualify for the Section 179 deduction in any given tax year, the equipment and off-the-shelf software must be purchased (or financed) and placed into service between January 1 and December 31 of that year.

Bonus depreciation

The Internal Revenue Code, under the Tax Cuts and Jobs Act of 2017 (TCJA), now permits “bonus depreciation” of up to 100% of the cost of eligible property. Bonus depreciation must be taken in the first year that the depreciable item is placed in service. The practice may claim either bonus depreciation or the Section 179 deduction but cannot double up on both. There is currently no limit to the annual bonus depreciation allowed. Order of preference will depend on the facts and circumstances of each business. After January 1, 2023, the bonus deduction will phase down to zero from 2023 to 2027.

Summary

Code Section 179 election and Bonus Depreciation could help when investing in your practice and are methods of accelerating depreciation. Note that businesses are not required to make these elections and can, instead, depreciate the property over its normal life if they find that to be advantageous.

Before you take Code Section 179 and/or bonus depreciation deductions, consult with your tax or legal advisor. Evaluating the short- and long-term impact of your purchasing decisions to your overall tax strategy is important to running your business. Your tax advisor can help you properly evaluate the impact of these alternatives, so you can make the most informed decisions.

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This information is to provide a basic overview of Internal Revenue Code Section 179 and Bonus Depreciation. By providing this information Patterson Dental is not offering legal, tax or financial advice. Please consult your tax professional to discuss tax deduction code sections and your practice’s eligibility, benefits, implications and any tax related questions or guidance needs. Source: www.section179.org/