It is impossible for a dentist to stay aware of all of the clinical breakthroughs in the dental profession and still have time to track all of the changes on the tax scene. Taking advantage of tax incentives, such as Section 179 can result in financial and clinical business improvements.
Right now, even a crystal ball would not give a succinct view of the nation’s tax future. The Section 179 deduction is one sure incentive currently available to businesses this year. In March 2010 President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act, with some of its best benefits, such as Section 179, having limited remaining time eligibility. Section 179 allows dentists to write off expenses for the first year of capital equipment purchases up to $250,000. Keith Drayer, vice president of Henry Schein Financial Services says that putting the equipment into service by December 31, 2010, is “crucial because the deduction incentive is expected to decrease on Jan 1, 2011.”
Through tax incentives, Drayer notes, “Doctors are lowering their adjusted gross income (AGI) which could help them qualify for other various deductions which are limited by their AGI.” He offers an example based on a hypothetical $200,000 purchase put into service on or before December 31, 2010. “That whole amount, under Section 179 is 100 percent deductible. Calculating for a person in the 35 percent tax bracket, the potential tax savings is $70,000.” He adds that deferred financing helps. “Even if payment is not made until 2011, doctors can still take advantage of 179 because the tax deduction is defined by when equipment is placed into service. Some practitioners benefit from the grace period of deferred financing while they get used to their new technology.” He continues, “On $200,000 worth of equipment, with five-year financing, payments are approximately $4,000 per month. If you are saving $70,000 in taxes, it is as if you have your first 17-1/2 months of payments paid just from those tax savings.”
Dr. Jim Caskey, a Texas-based orthodontist, has experienced the Section 179 deduction first hand from his purchase of his i-CAT Cone Beam scanner last year. He says, “Patients know that they have come to a place that has invested a lot of money to give them the best of care.” He recalls, “I found out about 179 through discussions with the Henry Schein sales rep, but I also know about the tax laws and have a good relationship with my accountant. He told me that I saved $70,000 last year from the i-CAT purchase in tax savings. That’s big.” He adds, “I recommend anybody considering it to jump on it. It’s worth it for increasing a practice’s efficiency, and they won’t regret it.”
Specific types of products are applicable to the deduction. “The power of Section 179 benefit increasing to $250,000 is that we see practitioners investing in multiple technologies such as E4D CAD/CAM , i-CAT cone-beam, DEXIS digital radiography, and DENTRIX practice management systems,” says Drayer. Many of the products must be off-the-shelf. Drayer specifies, “For example, while DEXIS imaging software and DENTRIX practice management software is eligible, software built from the ground up may not be eligible.” Besides Section 179, dentists still may qualify for other deductions. In many cases, the choice is simple—take advantage of a tax benefit to buy equipment that enhances the practice, quality of care, and the staff and the patient experience, or pay more hard-earned money to the IRS. While in the tax world today, the only thing that remains constant is change, and dentists who take advantage of appropriate tax deductions (with their CPA’s help) get my vote.
CPA Alan Jones holds degrees in both Accounting and History. He services clients throughout the US from his private practice in Raymore, MO.