If you are on the fence about replacing that worn chair or fading treatment room light, adding a dedicated digital sensor into your second and third operatories, or trying a diode laser— get off the fence. It’s time to invest in your practice, but there may not be much time. Thanks to the American Recovery and Reinvestment Act, the expanded deduction benefits offered last year in Section 179 of the IRS tax code are once again available through then end of 2009.
How it works
Here’s how it works. Created to encourage small- and medium-sized businesses to buy equipment and invest in themselves, Section 179 allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year (instead of spreading out depreciation deductions over several years).
Limits
Section 179 does come with limits— there are caps to the total amount written off ($250,000), and limits to the total amount of the equipment purchased ($800,000). The deduction begins to phase out dollar for dollar after 800k, so this makes it a true small- and medium-sized business deduction.
“The $250,000 limit that was in place for 2008 was scheduled to be rolled back to $125,000 for 2009 until the American Recovery and Reinvestment Act extended the $250,000 limit to December 31, 2009,” said Dan Rothstein, DDS, MBA, CPA and owner of Ancram, N.Y-based Accounting for Dentistry, C.P.A., P.C., a firm dedicated to the accounting, tax and management issues of dentists and dental related companies. “Unless additional legislation is enacted to further extend this increase, the limit will revert to $125,000 for 2010.”
“Dentists also can take bonus depreciation of 50% on the amount that exceeds the $250K limit for equipment and qualified leasehold improvements placed in service on or before 12/31/09,” added Bassim Michael, CPA, MS and owner of Michael & Co. CPA in Fresno, Calif. “The Section 179 deduction is set to go back to $125,000 in 2010 and to $25,000 in 2011.”
Who Qualifies
All businesses that purchase or finance less than $800,000 in business equipment should qualify for the Section 179 Deduction. In addition, most tangible goods qualify for the Section 179 Deduction (see list of qualifying equipment). Also, to qualify for the Section 179 Deduction, the equipment purchased must be placed into service between January 1, 2009 and December 31, 2009.
The deduction begins to phase out if more than $800,000 of equipment is purchased— in fact, the deduction decreases on a dollar for dollar scale after that.
Financial management
While it may seem that taking the maximum accelerated depreciation available under Section 179 would be a certain benefit, and it often is the best course of action, there may be circumstances that would favor depreciation over time.
“If a dentist expects that later years will have considerably more revenue or considerably less expense than the current year, the deductions could be worth more later on than they are now and it would make sense to forgo the Section 179 method,” according to Rothstein. “It’s best to view the availability of the Section 179 provisions as a planning opportunity that becomes part of the overall financial management of the practice. I always tell my clients, ‘Be careful not to let the tax tail wag the good financial management dog.’”
Bassim offered a couple of other considerations to keep in mind. “In addition to depreciation incentives, dentists located in certain “zones” may qualify for state and federal tax credits,” he said. “And another reason dentists may want to expedite their equipment purchases is that interest rates are at historical lows. We have seen many banks eager to finance equipment and leasehold improvement projects for dentists.”
 The IRS has a dedicated Web site that explains all aspects of Section 179 and includes a link to an online calculator to help you measure savings.
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