Is your practice taking advantage of Section 179 of the tax code? If not, you may be missing out on some serious business savings. Some expenses like office supplies benefit your business in the short term. But what about long-lasting purchases like furniture, CEREC machines, and digital imaging scanners? That’s where Section 179 – and depreciation – come into play.
What is Section 179 Tax Code?
Section 179 allows companies that purchase equipment and technology to depreciate those fixed assets over their useful life. Essentially it’s an accounting method that matches the cost of acquiring an asset with the years the asset earns revenue.
What are the Advantages of Section 179?
You can recover your original purchase cost. For qualifying assets such as equipment and technology, you can deduct the cost of the purchase in the year you place it into service or take non-cash depreciation deductions against revenue over the useful life of the asset.
You can save money on taxes. Depreciation expenses are tax deductible, which in turn lowers your practice’s taxable income. And lower taxable income means more tax savings and greater profit.
How Does it Work?
When you depreciate asset expenses, you can recover the cost of your purchase over the useful life of your asset. Let’s say you purchased a dental chair, which the tax code states should last five years. Your practice can annually deduct one-fifth of the cost of a chair on your tax return for five years, until it is fully depreciated.
When Should you use Section 179?
You should use Section 179 when you are investing in assets that will generate a positive rate of return such as a CEREC, dental chair, or scanner. These assets can generate future income exceeding the cost to acquire. Still don’t know if you should use Section 179? Ask yourself, “Does the equipment or technology I’m looking at truly improve or maintain the quality of care I desire for my patients?” If you said yes, use it to your advantage!
3 Rules to Know!
- There is a time limit! The deduction is allowed ONLY in the year that the asset is “placed into service,” aka the year in which the equipment is ready for use, not the year in which the equipment is purchased.
- Can you lease (or finance) equipment and take the Section 179 deduction? Absolutely! Section 179 applies to personal property, such as equipment and technology, as well as potentially leasehold improvements. Nothing further. PS: this would be a smart strategy, since the deduction you take may exceed total loan or lease payments you make for the year.
- The deduction is limited to $500,000 of equipment purchases in a single year. Equipment that qualifies for the deduction but exceeds $500,000 can be depreciated across future tax years. This does not mean the deduction is lost, it is simply delayed.
Are you ready to boost your business’s bottom line? Let us know in the comments below! Want to learn more about Section 179 and its advantages? Read more HERE!