The year 2013 is fast coming to a close, and with the continued fiscal uncertainty in Washington, no one can say for sure what changes are in store for 2014.
The federal government’s need to generate more tax revenue and close what some perceive as “loopholes” may spell the end of a highly favorable capital-purchasing environment with accelerated equipment depreciation. In other words, "these are the good old days" when it comes to advantageous tax treatment and depreciation, and extremely favorable equipment financing options. Indeed, this may be the time to upgrade to enhance practice efficiency with new digital radiography equipment.
Under Section 179 of the IRS tax code, which has been modified several times since 9/11 and the recession, practices are allowed to deduct all or part of the purchase price of certain qualifying business purchases including equipment, technology and off-the-shelf software. The 2013 Section 179 deduction is $500,000, which begins to phase out at $2 million. In addition, there is a bonus depreciation deduction. The equipment must be in use by December 31, 2013.
However, this opportunity will be reduced when the ball drops on New Year’s Eve if Congress decides to reduce this favored business equipment incentive for small businesses, such as veterinary practices or laboratories. If that’s the case, on January 1, 2014, Section 179 deduction amount will go from the $500,000 limit this year back to the original cap of $25,000, with a phase out beginning at $200,000. Additionally, there will be no bonus depreciation utilization in 2014. So if practices wait to make an equipment, technology, or software purchase, they will lose a big tax deduction.
Consider the example in the chart below.
Equipment Price $50,00
Tax savings (if in 38% tax bracket) as a result of Section 179 benefit $19,000
New Equipment Net Cost (after taxSavings) $31,000
Amount Paid to the IRS for 2013 taxes without new equipment purchase $19,00
Source: Henry Schein Financial Services
In addition to depreciation and tax benefits, there are other reasons to move quickly on equipment purchases.
Faster ROI on New Equipment and Technology - Any equipment or technology purchases that enhance profitability are easier to justify in this year’s favorable financial climate. Bringing equipment online sooner will also increase practice efficiency and effectiveness, which may result in incremental profitability, a higher level of quality care and greater patient satisfaction.
More Favorable Deferred Financing - The interest rate environment is still historically low which makes financing large purchases attractive. Specialty lenders are offering 100 percent financing as well as long-term deferrals for equipment or technology with favorable deferred payment options of six to nine months at 0 percent interest if paid within the deferred period.
Eliminate downtime from faulty or outdated equipment – Still on the fence? Consider the loss of revenue, equipment downtime and unhappy patients you may experience the next time an outdated piece of equipment breaks down…again. If it needs to be replaced, the general rule is “sooner is better than later”.
Before taking any action that may affect your business, you should consult a qualified professional advisor as these are individual circumstances, and, by means of this article, Henry Schein is not offering accounting, financial, legal, tax or other professional advice or services.
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Keith Drayer is Vice President, Henry Schein Financial Services. Henry Schein Financial Services provides equipment, technology, practice start-up and acquisition financing services nationwide. Henry Schein Financial Services can be reached at 800-853-9493 or firstname.lastname@example.org. Please consult your professional advisor regarding your individual circumstances.