Whether you’re investing in a new chair, upgraded computers, or a new CBCT scanner, the costs associated with running a successful dental practice can be inordinately high. Fortunately, there’s a tax rule that can help dentists better manage these costs: Section 179.
Section 179 is a tax rule that allows dentists to write off qualifying equipment costs immediately, rather than the deduction being dragged out of the course of several years. What this means in practical terms, is that dentists can reduce their tax bill in the same year in which they made a large equipment investment.
While you can work with dental practice accountants to find out more about this useful little tax rule, you can also learn a little more by reading on:
Section 179 and how it works
When dentists invest in equipment like computers, cabinetry, and CBCT scanners, they usually have to wait while it depreciates over the course of time; often a number of years. But with Section 179, the same year that the equipment is in, is the year in which you can fully write off the cost. Currently, qualifying purchases are deductible up to $2,500,000. What’s also great is that the rule applies to used equipment, too.
For equipment to qualify for this particular tax rule, it must be installed and ready to be used by the end of the year.
As with all tax deductions, it’s imperative that you hold on to all invoices, receipts, and installation notes.
Section 179 and Bonus Depreciation
In some circumstances, if going beyond your Section 179, Bonus Depreciation may enable you to deduct the rest, in the first year. Currently, you’re able to deduct up to 100% of the cost in the first year, for property that qualifies.
The order is typically as follows:
- Choose which items will be classed as expenses under Section 179
- Then, the rest of the eligible cost can be covered by bonus depreciation
- Should anything be left, regular depreciation can be applied
Why spreading your deductions is often smarter
When planning tax deductions, the order in which you do things really does matter, particularly when you’re trying to match up the annual income of your practice, with big purchases. The best way to make sure that you always get the order right and maximize your tax deductions, is to work with specialist accountants for dental practices. They will likely advise you that just because you can take all your deductions at once, doesn’t mean that you should. Oftentimes, the savviest move in terms of tax savings is to spread the deductions out, particularly if you anticipate your income to be higher in the future.
Section 179 can be a game changer for dentists, but when planning to make large equipment purchases, it’s important to carefully consider your income limit, state rules, and financing. Section 179 can only be taken up to the taxable income generated by your practice, and not every state follows federal rules when it comes to this particular tax rule. Lastly, it’s worth noting that even if you use finance to purchase the equipment, you’re still entitled to deduct the cost in full, which can be advantageous in terms of cashflow.
