A gift with an extremely short lifespan was given to veterinary practices and other small businesses when President Obama signed tax-break legislation approved by Congress.
The gift is Section 179, a part of the tax code that enables small businesses to immediately write off up to $500,000 in capital asset purchases on their taxes instead of using depreciation over time. The legislation increased the limit from $25,000.
The bill was signed into law Dec. 19 along with a package of $42 billion in tax incentives. The approved deductions include those for medical equipment, office furniture, computers and fixtures.
Section179.org, an online resource covering that section of the tax code, explained that the measure covers only the 2014 tax year.
“Therefore it is a good business decision for many to finance equipment immediately to make the December 31, 2014, cutoff for the write-off provisions,” the website advised.
The legislation is a one-year, retroactive extension of the Section 179 tax breaks. That’s great for anyone who made big purchases this year, but time is running out for anyone else, said Tom A. McFerson, CPA, of Gatto McFerson CPAs, an accounting and consulting firm that focuses on veterinary practices.
Making the purchase is only part of the battle. The tax code states that to qualify for the write-off, equipment must be paid for or financed and be operational on the premises by year’s end.
“For a big computer system or an X-ray, it’s a time crunch,” McFerson said.
Easier purchases may be big-ticket items such as individual computers, file servers, office furniture or fixtures, or a dental X-ray or therapeutic laser, he said.
Sellers of big, complex equipment are ready to accommodate buyers.
“All these equipment vendors, they’re bending over backward to make this happen,” McFerson said.
Less than a week after the legislation passed, medical products supplier Henry Schein Inc. issued a news release to tell buyers that the company can help with fast purchases.
“Henry Schein Financial Services is focused on offering practitioners attractive financing costs,” vice president Keith Drayer said in the statement. “Practice owners may face higher financing costs next year with less favorable after-tax cost on equipment purchases, computers, software and furniture while struggling to balance technology costs.
“However, with favorable deferred-payment options, an office can start generating revenue by purchasing and using new equipment now, paying for it next year and maximizing the after tax savings this year,” Drayer added. “Taking advantage of Section 179 now through the end of the year represents a financial opportunity for health care practices.”
Section 179’s return to the half-million-dollar mark may have a profound impact on a practice’s tax returns, McFerson said.
Until the passage of the legislation, Section 179 had reverted to its original $25,000 allowance for expensed new equipment. In 2013, the number was $500,000.
At the upper limit, practice owners may buy a large piece of equipment, finance or lease it with little money down, and write it all off in the year of acquisition.
With the lower $25,000 limit, only that amount could be written off immediately on taxes. The remainder must be written off as the equipment depreciates over five to seven years.
“If you’re in a high tax bracket, then you’re better off trying to take the whole write-off this year,” McFerson said.
For those practices that expect higher profits in coming years, taking write-offs over several years may be a better bet, he said.
For practices that can’t make something happen over the next few days, there’s always next year, but it would take another act of Congress and compliance from the president.
“Now we’re waiting to see what happens in 2015,” McFerson said. “Will it pass? And will be last minute?”