Earlier in the year, the U.S. Senate Finance Committee passed an extension of two years for Section 179, which provides small businesses (including healthcare practices) with tax deductions for the purchase or (in some cases) leasing of equipment.
This was very good news for owners of small medical practices who may have been hoping to upgrade their equipment in 2015.
Why? Well, for those who may not know, the Section 179 extension means that for 2015 you will be able to take advantage of tax deductions for as much as $25,000 in qualifying capital equipment expenses. Paid-in-full purchases of capital equipment would qualify, of course, but this deduction also considers equipment acquired via non-tax capital leases or Equipment Finance Agreements (EFAs) to qualify. The leasing and EFA options are pretty useful, since it allows you to qualify for the full amount of your deductions for 2015 without actually having to pay the full amount for the equipment within that tax year. Let’s take a look at how these two options work:
- Non-tax Capital Lease: in a non-tax lease, you (or your practice) will be considered the owner of the leased equipment. As a result, it allows you to reduce your taxable income by the amount of depreciation and interest expense.
- EFA: this alternative financing option, you still pay for the equipment monthly. However, your practice is considered the owner of the financed equipment instead of the lender. Combining an EFA with the Section 179 deduction, the amount you deduct will exceed cash layout for 2013.
The purpose of Section 179 has always been, and will continue to be for at least another two years, to encourage business owners to invest in more efficient equipment or upgrade to improved technologies by allowing them to deduct the value of these assets from their taxes during the first year (of owning the equipment).
Those who purchase new equipment (which includes such items as new furniture, office fixtures, machines/hardware, and even new software) may be allowed to deduct as much as $25,000 during the first year of ownership.
On December 18, Congress voted to raise the deduction to as much as $500,000, which was the original amount prior to this year. The bill will now have to be signed by President Barack Obama to officially be put into law.
The remaining amount may qualify for further reductions (up to $200,000) by applying the Modified Accelerated Cost Recovery System (MACRS) tax depreciation. Under MACRS, the capitalized cost of tangible property can be recovered over specified equipment lifespans by annual deductions for said equipment’s depreciation.
Stay tuned for any updates regarding Section 179 that may come this week.