Office Equipment & Taxes

Writing off Equipment Can Be Money in Your Pocket

With so much press about the rebate checks and when they will arrive for most Americans, that the best parts of the 2008 Economic Stimulus Act are often overlooked. Of course, you have to have a business to qualify for them and perhaps that’s why the media is staying away. But physicians should listen.

Here’s how the new rules work. The Section 179 expensing provision has been increased to $250,000. That means that if you buy a new piece of equipment or make tenant improvements to your space, or do any of a hundred other ways to invest in your medical practice with personal property, you can take an immediate expense up to $250,000.

Let’s say you buy a fantastic new piece of technology that's going to improve your practice and increase billings. You pay $400,000, but are able to get great terms on financing and only need to put $50,000 down in cash. You are out of pocket: $50,000. Your immediate write-off is $250,000. There is one caveat. You must have that much income from your business to handle that offset.

The tax breaks don’t stop there, though. You can also take bonus depreciation of 50% of the remaining basis, provided the purchase is new, not just new to you. And, then, the remaining basis is depreciated using the standard depreciation tables.

So, with the additional write-offs, let’s look at how much this piece of equipment could actually save you:

Purchase price

$400,000

Section 179

$250,000

Bonus depreciation

$75,000

Assume 20% regular

depreciation rate

$37,500

Total deduction

$362,500

And you got that whole deduction with just $40,000 out of pocket!

If your income isn’t high enough to take advantage of the full Section 179, you can take a partial Section 179 and then increase the Bonus Depreciation calculation. There is no restriction for having the Bonus Depreciation push you into a loss.

This is just one of the little tricks that Congress has given us this year. Look for more as the election year continues to heat up. The legitimate tax strategies always seem to focus on business owners. If you have your own practice or are paid as independent contractors, this might be the best year yet for you. If you don’t yet have a business, look for a way to start one or convert some of your W-2 income into business income.