That magical time of year is upon us once more… Yes, the holidays are always fun. However, tax time is also coming up, and that is not so much fun. Most businesses dread doing their taxes. If you’re like me, you are always on the lookout for deductions to help you keep more of your own money.
Luckily, Tax Code 179 is available to help businesses, including medical practices, by allowing them to expense the cost of capital goods in the same year they were purchased. In most cases when deducting expenses, the deduction must be spread over multiple years. Tax Code 179 will decrease your taxable income and effectively reduce the price of any capital goods you purchase.
This year, congress has given businesses a special gift and increased the deductible amount up to $500,000. You can deduct up to $500,000 on equipment purchased before 12/31/2010. Any amount over $500,000 can be depreciated over five years as normal.
Tax Code 179 will decrease your taxable income. If you purchase equipment that costs less than $500,000, you can expense the full cost. For example, let’s assume you purchase software and hardware totaling $75,000. You can expense the full amount. Assume also that your taxable income is $100,000 before Tax Code 179. Expensing $75,000 decreases your taxable income to $25,000.
Tax Code 179 will reduce the effective cost of your investment. Let’s assume, once again, that you are considering purchase of a system with a price of $75,000. Let us also assume the tax rate of your practice is 35%. If we multiply $75,000 by 35%, we get $26,250 in 2010 income tax savings. If we subtract $26,250 from the system price of $75,000, we find that your system really cost only $48,750.
How can your practice take advantage of Tax Code 179? Tax Code 179 is available every year, but it does not roll over. This year’s expense of $500,000 is unprecedented; there is no guarantee it will remain at this level next year. The code can be a huge help for small practices that wish to purchase an electronic health record (EHR) system. However, practices must purchase the system before the year is over.
Tax Code 179 combined with HITECH reimbursements which start next year make now a great time to purchase an EHR system. Please contact us if you would like more information about Tax Code 179, the HITECH stimulus program, or EHR systems. We would be happy to conduct a needs analysis for your practice; there is no obligation to purchase anything.