Until the end of 2011, medical practices can write off up to $500,000 of new equipment expenditures - on things like diagnostic instruments and EMR software - in a single tax year as opposed to multiple years.
Until the end of 2011, businesses can write off up to $500,000 of new equipment expenditures in a single tax year as opposed to multiple years. This means if a medical practice purchases or leases qualifying equipment, such as diagnostic equipment, diagnostic instruments, EMR software, and computer hardware, it can deduct the full purchase price from its gross income.
The Tax Relief Act of 2010 extended a deduction under Section 179 of the IRS tax code that allows businesses to deduct the full purchase price of qualifying equipment purchased, financed or leased during the tax year. So as long as a business, such as a medical practice, purchases less than $2 million worth of qualified equipment in 2011, it may write off as up to $500,000 for 2011. In order to qualify, equipment must be placed into service between January 1, 2011 and December 31, 2011.
Beyond this initial savings, The Tax Relief Act of 2010 allows a 100% deduction to continue for medical practices if more than $2 million worth of equipment is purchased. If a medical practice purchases enough equipment to exceed the $500,000 deduction, it can take a “bonus” 100% depreciation on the rest.
These incentives were created by the U.S. government to encourage business, such as medical practices, to purchase needed equipment and re-invest in themselves. If a medical practice finances or leases medical equipment in 2011, the full deduction can be taken, while the practice only pays out a small amount of the expense. Section 179 can result in net positive cash flow, giving a healthy boost to a medical practice’s bottom line in 2011.
Section 179 tax savings example:
Cost of medical equipment, EMR/practice management solution
and associated hardware: $600,000
Section 179 Deduction: $500,000
Bonus Depreciation: $100,000
Regular First Year Depreciation Deduction: not applicable
Total First Year Deduction: $600,000
Cash Savings on Equipment Purchase: $210,000
(Assuming a 35% Tax Bracket)
Lowered Cost of Equipment after Tax Savings: $390,000
* Depreciation calculated at 5 years.
* 100 % bonus depreciation after Section 179 deduction
Time is limited. The enhanced Section 179 deduction and the availability of bonus depreciation will change after December 31, 2011. Medical practices can accelerate depreciation on equipment purchases and reduce taxes for 2011. These savings drop directly to the bottom line and can have a substantial impact.
Anne M. Dunne is Grassi & Co.’s director of Healthcare Consulting. Anne is a Registered Nurse with an MBA and holds dual certification in nursing case management and multiple sclerosis nursing. In her role at Grassi & Co., Anne helps Grassi’s health care clients with various practice management issues, including practice and clinical service expansion, revenue cycle analysis, practice benchmarking, operational assessments, HR management, coding, and documentation and audit/compliance issues.