It’s not too soon to plan how you’ll help practices get a big break for tax year 2018.
The thing is, your customers may not be aware that The Tax Cuts and Jobs Act of 2017 changed some of the laws regarding depreciation deductions on capital equipment purchases.* So, if you bring up these changes, you may possibly help your customers benefit from investing in new equipment.
First, a quick explanation of what Section 179 means.
It’s a tax rule that allows a business, such as a veterinary practice, to deduct the entire purchase price of each qualifying piece of equipment bought (purchased, financed, or leased) and put into service during the tax year. In this case, tax year 2018.
If your customers buy or lease qualifying veterinary equipment or software, they can deduct the full price from their annual income… which is a huge incentive to invest back into the practice.
The changes to IRS Section 179 are significant when it comes to veterinary hospitals investing in new capital equipment.
- Starting with tax year 2018, the new law has increased the maximum deduction from $500,000 to $1 million for each qualifying piece of equipment.
Since the new maximum deduction has doubled — and your customers can possibly write off certain tangible property (equipment) expenses of up to $1 million per each purchase — this is spectacular news if a clinic is looking to invest in new equipment.
Perhaps you’ve been talking with a practice looking to expand or upgrade their facilities. This may be the perfect reason to go ahead and add new surgical suite equipment or a new PIMS (practice information management system), etc.
- The new law has also increased the phase-out threshold from $2 million to $2.5 million.
This means a practice can purchase up to $2.5 million in total equipment costs, and then the deduction starts to phase out after that amount has been reached. Again, this increase may be just what a clinic needs to expand, add a service, or upgrade their equipment.
- In addition, the law has expanded the definition of Section 179 property. Now, the taxpayer may choose to deduct the cost of certain building-interior improvements not included before… such as heating, ventilation, air-conditioning, alarm and security systems, and fire protection.
This means the practice can look beyond analyzers, exam tables, PIMS, computers, digital imaging, and other medical equipment when looking at potential tax breaks.
The key to all this is the IRS phrase, “The year the property was placed into service.”
To potentially qualify for the Section 179 deductions, practices must place their new equipment into service by midnight on December 31, 2018.
So, even though it may seem too soon to discuss this with practices in your sales territory, major equipment investments can take some time to discuss, consider, order, install, and place into service.
Know your lead times! How long does it take to get a new dental suite installed? Or a new PIMs? Make sure you know the lead times generally required by each manufacturer. It could be as long as three to four months, which is why we’re bringing this up NOW.
How to help practices starting now.
As you visit clinics, ask your customers if they’re familiar with the Section 179 changes for tax year 2018. If not, go over the basics and show them the IRS website explaining how it all works.
Suggest that they talk with their CPA or other experienced tax professional to determine whether or not the practice’s purchases (or considered purchases) will qualify for the Section 179 deductions. (Important note: It’s fine and recommended that you bring up Section 179 as a great money-saving strategy, but practices need to run the numbers and their tax status by a CPA or other expert to make sure this will benefit them.)
Ask about their dreams and goals for the practice. Is this the year to upgrade their equipment, add a new service, create a new treatment room or dental suite, buy new software, or make any other purchases for the practice? It just may be, thanks to the increased potential tax benefits.
Finally, if your customers are thinking about making purchases this year, you’re the trusted equipment representative who can help them choose wisely.