Year-end brings some important tax planning implications for physicians, because both the Tax Relief Act of 2010 and the Jobs Act of 2010 affected Section 179 of the tax code in a positive way.
You can basically write off 100% of up to $139,000 of equipment and software you purchase this year. If you haven’t taken advantage of this yet, there’s still time!
Here’s how it works:
First, you can purchase up to $560,000 worth of equipment and software (which would have been only $200,000 prior to the new legislation.)
Also, the deduction limit, after adjustment for inflation, has increased to $139,000 (which would have been only $25,000 prior to the new legislation).
The new law also allows 50% bonus depreciation on qualified assets placed in service during 2012.
When applying these provisions, Section 179 is generally taken first, followed by the bonus depreciation (unless the business has no taxable profit in 2012).
That’s a lot to digest, so let’s look at an example. Say you buy $150,000 worth of equipment and software – including an electronic medical record (EMR) this year. The calculation below shows how much it actually costs you after tax incentives.
Equipment Purchase = $150,000 First-year (2012) writeoff = $139,000 50% bonus first-year depreciation (150,000-139,000)X 50% = $5,500 Normal first-year depreciation (20% in each of five years on remaining amount) = $1,100 Total first-year deduction (139,000+5,500+1,100) = $145,600 Tax savings (145,600 X 36% tax rate) = $50,960 Cost of equipment after tax (15,000 less all tax deductions) = $99,040
To take advantage of this deduction, your equipment or software must be in place on or before December 31, 2012 – so don’t delay.
Remember, successful businesses take advantage of tax incentives to help lower their operating costs. The Section 179 gives businesses such as yours an incentive to invest in themselves by adding capital equipment, and it’s easy to use.