With the calendar year’s end quickly approaching, it’s a good time for tax planning. Savvy doctors can maximize their savings through a number of smart preparation tactics, one of which is paying heed to section 179 of the tax code.
Section 179 lays out the rules for deducting the cost of equipment such as tables, new or pre-owned lasers, and X-ray devices from your taxes. The program is an incentive created by the government to encourage healthcare professionals like you to purchase equipment and invest in your practice.
“Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of a certain property over the time you used the property. It is an allowance for wear and tear deterioration or obsolescence of the property.”
IRS Publication 946
For 2015, this tax deduction allowance is up to $25,000. The deduction can be taken in one year or spread over five years. A useful resource is section179.org, which explains more of the details.
Financial testimonials
Offering his view on section 179, Mitch Terkeltaub of Lance Leasing in Valley Stream, New York, said, “The fourth quarter is a great time for doctors to capitalize equipment for their practice. Equipment is installed in 2015, section 179 deduction taken in 2015, and payments begin in the first or second quarter of 2016.”
Tyler Tucker at Semper Fi-nancial in Pekin, Illinois, has also seen positive outcomes from this tax opportunity. “Deciding to enact section 179 might be the most profitable decision you make this year,” he said. “When you implement properly structured financing and section 179, your deduction will almost always exceed your outlay for the year. Financing combined with section 179 is a win-win proposition. It allows your bottom line to be enhanced, thus making your practice look financially stronger.”
Your savings in action
An example of how much a doctor in the 35-percent tax bracket could save in purchasing a new or used piece of equipment using section 179 is shown in Table 1. The example shows the list price of the equipment versus the doctor’s out-of-pocket costs after the savings are applied.
| Scenario 1 | Scenario 2 | Scenario 3 | |
|---|---|---|---|
| List Price | $10,000 | $20,000 | $25,000 |
| Tax Savings | $3,500 | $7,000 | $8,750 |
| Actual Doctor’s Cost | $6,500 | $13,000 | $16,250 |
You can pay your money to the government as taxes, or acquire equipment that will generate additional income for your practice.
If you can combine a section 179 tax write-off and a lease at the end of the year, you are minimizing out-of-pocket cash and maximizing your write-off. Your cash flow will greatly benefit.
| Scenario 1 | Scenario 2 | Scenario 3 | |
|---|---|---|---|
| List Price | $10,000 | $20,000 | $25,000 |
| Section 179 Deduction | $3,500 | $7,000 | $8,750 |
| One-month Lease Cost | $210 | $420 | $525 |
| Cash Savings | $3,290 | $6,580 | $8,225 |
Consider a few examples using the same three scenarios. (See Table 2.) Our assumptions are:
- You fall under the 35-percent tax bracket and have section 179 eligibility.
- Your lease requires an upfront payment at the time of the lease signing.
- You are purchasing new or pre- owned equipment.
- The lease is for the duration of five- years with equal payments each month and a $1 buyout.
- Rates are illustrative and require acceptable credit history.
As you can see, you will receive anywhere from $3,500 to $8,750 in tax savings in these examples. Your invest- ment in the lease will range from $210 to $525 per month. You are cash-flow positive from $3,290 to $8,225 for calendar year 2015.
If you decide to go this route, your accountant will ensure that your tax forms reflect your section 179 deduction—and applaud your tax planning.
Rob Berman is a partner at Berman Partners, LLC, a medical device sales, service and marketing company. He has held a variety of marketing roles during his career. Rob can be contacted by phone at 860-707-4220 or by email at . His company website for new lasers is www.bermanpartners.com and for used lasers www.usedlasercenter.com.
