The end of the year is upon us, and that can only mean one thing. Everyone is looking forward to the joys of turkey dinners and holiday festivities. However, for most of us that run or own businesses, the end of the year means we have to start thinking about taxes.
Most of us are aware of the more common tax deductions. Some of us even meticulously keep track of expenses and receipts to make the paperwork easier. Many small business owners, especially physicians, may not be aware of the deductions offered by Tax Code 179.
Internal Revenue Code Section 179 allows a sole proprietor, partnership, or corporation to deduct up to $250,000 of software and equipment purchased before the end of the year. Under normal circumstances, business property that has more than one year of useful life must be deducted over several years, accounting for depreciation. However, Tax Code 179 will allow businesses to deduct the entire cost, up to $250,000 in the same year it was purchased.
$250,000 is a huge deduction, and should completely cover the cost of any EHR system for small and medium-sized practices. Another benefit of Tax Code 179 is that it will reduce the effective cost of your EHR system. For example, if you purchased a $23,000 system, and your tax rate is 35%, you could save $8050 in actual income tax. This would reduce the actual cost of your system to about $14,950.
One thing to keep in mind is that the exemption does not roll over each year. Previously, the exemption was only $25,000. The current exemption is $250,000. However, there is no guarantee that will be in effect next year, particularly with the expensive bills Congress is passing.
Physicians who have already purchased an EHR this year should check with their accountants to see if they can take advantage of this huge deduction. If you have not purchased an EHR yet, it isn’t too late. I understand physicians may not want to purchase an EHR over the holidays when budgets are tight and revenues are down. However, purchasing an EHR now offers several benefits.
Many medical software financing companies offers three, six, and nine month deferred payment plans. That means you can get your system up and running this year, which is required by Tax Code 179, and not have to make any payments until next year. Deferred payments eliminate additional expenses while your revenues may be down due to training and implementation.
Another reason to purchase before the end of the year is to avoid the market rush due to the HITECH stimulus package. Analysts predict physicians will rush to purchase systems early next year to qualify for the stimulus money offered in 2011. Be sure you get in before the rush so you have plenty of time to implement your EHR.