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Everyone Benefits When Veterinary Practices Explore These Tax Breaks

By Pam Foster
August, 2017

Sections 179 and 168(k) depreciation options of the U.S. Internal Revenue Code can become glorious, money-saving strategies for smart veterinary practices. Here’s why.

If a practice needs to purchase new equipment — they may be able to deduct the full purchase price of qualifying equipment during the tax year in which it was placed in service if they elect to do so under Section 179… instead of deducting a portion of the purchase price over five years through standard depreciation.

Vet Advantage image: Depending on the equipment investment for 2017, a veterinary practice may be eligible to claim both the Sec. 179 expense and Section 168(k) Bonus Depreciation.

So, it may benefit any practice looking to acquire more accurate tools, add a valuable new service, create a more ergonomic workspace, increase their skills, accommodate more patients, or other purposes.

For instance, let’s say a veterinary practice team has determined that a new surgical suite is a
must this year. They look at buying new lighting, laser surgical equipment, modular casework (cabinets, tables, and shelves) for the surgery room, patient monitoring equipment, and other related needs. 

This investment could add up to a big chunk of change, right? But depending on their tax situation, the Section 179 option could help them reduce their tax burden for the year, which can be significant.

In addition, there’s another option called Section 168(k) “Bonus Depreciation.” 

This also allows the practice to deduct qualifying equipment purchases in the first year of service; after the Section 179 limit has been reached. For 2017, practices can deduct up to 50% of the cost of qualified property 

PLEASE NOTE: This amount is being reduced to 40% for 2018 and 2019… so 2017 is the best year to consider taking advantage of this option.

Let’s look at how this all works, so you can talk with practices about it in your DSR role.

 
Section 179 for Tax Year 2017
For Section 179 property purchased and placed in service in 2017, the maximum total amount that can be expensed is $510,000.

Practices may qualify in 2017 if they…

  • Purchase less than $2,030,000 worth of equipment for the year
  • Use the “placed in service” equipment more than 50% of the time in the practice
  • Purchase new or used equipment that fits within these qualifying categories:
    • Machinery and equipment used in an active trade or business
    • Furniture and fixtures used in an active trade or business
    • Certain depreciable off-the-shelf (“canned”) computer software
    • Modular casework

Section 168(k) Bonus Depreciation for Tax Year 2017
As we mentioned, this option can be used with new equipment only, and practices may qualify if they purchase equipment fitting this description:

  • Machinery and equipment used in an active trade or business
  • Furniture and fixtures used in an active trade or business
  • Certain depreciable off-the-shelf (“canned”) computer software
  • Modular casework
  • Qualified leasehold improvements

Depending on the equipment investment for 2017, a practice may be eligible to claim both the Sec. 179 expense and Section 168(k) Bonus Depreciation. The Section 179 expense allowance is claimed first; before an additional Bonus Depreciation is allowed.

There’s a lot more to this, but we’re purposely keeping the details very simple here, because every practice will need to consult a tax attorney and/or accountant to see if and how they qualify for these benefits. Only then can they determine if these tax strategies make sense for them in 2017.

We’re not suggesting that you try to help practices decide. However…

You can help practices look into making the most of Sections 179 and 168(k) — which is a win for them and you. 

  • First, bring up these tax options when you’re discussing equipment purchases during sales calls. Many practices not be aware of these depreciation options… especially if they’re new to practice ownership or making major purchases. 
  • Explain that they may not have to put off major equipment purchases if they qualify for these tax strategies.
  • Encourage them to run the numbers with their tax attorney, CPA, or other accounting professional to see if Sections 179 and 168(k) might work in their favor.

Imagine how pleased the practice teams will be if they can benefit from these tax options. Not only will they be ready to order their equipment… they’ll be ready to order it from YOU, the person who helped them discover these strategies.

IMPORTANT: Start talking to practices about Sections 179 and 168(k) NOW!

Why the urgency? Remember, we said the equipment must be placed into service THIS YEAR for practices to use these depreciation options for tax year 2017. We all know there can be a lead time between orders and installations; sometimes several weeks.

And, that 50% Bonus Depreciation option is only for 2017. It will be reduced to 40% in 2018 and 2019.

That’s why Q3 is an ideal time to bring up these options with every practice you visit. The sooner, the better.


NOTICE: This information is strictly for general informational purposes and should not be used for specific financial or legal guidance. Practices are urged to consult with their own tax professionals to review their individual circumstances: their annual revenue, purchases/expenses, and tax-saving options.

Topics: DSR Facing Blog

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