Your practice doesn’t have to settle for depreciating equipment over several years. With the “Section 179” deduction, you can generally elect to deduct machinery and equipment in one year.
The maximum Section 179 allowance for 2013 (and 2012) is $500,000, unless Congress acts to change the amount.
For many dental practices, this is one of the best tax breaks available today, yet many fail to take full advantage of it. Let’s say you spend $125,000 on equipment this year. How do your options look?
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 dental 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.
In order to qualify for the tax break, you must use the equipment more than 50 percent of the time for business. (If you use it for personal purposes too, you must maintain records and can write off only the business-related percentage.)
There are a number of other restrictions: For example, 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 (unchanged from 2012).
In addition, the amount you write off for Section 179 can’t exceed the taxable income from your business. That may be a problem for C corporations if the business zeroes out its income by paying everything in salaries because there won’t be enough income to cover the Section 179 election.
It might be better if the corporation pays less compensation and keeps enough taxable income to cover a Section 179 election. You can also carry over any excess to future years if you run up against the income limitation.
What if your C corporation operates at a loss this year but expects to turn a profit next year? You might be better off not taking the expense this year and carrying it forward, rather than depreciating equipment purchased this year over several years.
With some careful timing, you can fully utilize the tax break this year. Look around your practice toward year-end and buy any equipment you need.
As long as you “place it in service” by December 31, you can deduct the equipment with Section 179. You can even pay for it next year on credit and still write it off on this year’s tax return.
Tip: Some dentists are involved in more than one venture. In the case of pass-through entities (partnerships, LLCs, and S corporations), the dollar limitation rules for the Section 179 deduction apply at both the entity level and the owner level. (IRS Regulation 1.179-2) Therefore, advance planning may be necessary to maximize Section 179 deductions at the owner level, which is where the write-offs really count. Consult your tax adviser for details.
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