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    How to time major purchases to improve your tax position

     

    It might have felt like you just filed your business’s 2014 taxes, but the 2015 tax season is not too far away. If you intend to make any major purchases, it’s a good time to consider making them so that you can use the write-offs to your advantage.

    One of the most prevalent write-offs that can help your practice is a Section 179 deduction. Section 179 allows businesses to deduct the full purchase price of qualifying equipment during the tax year.

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    Section 179

    For many years, the Section 179 deduction was set at $25,000 – meaning that you could deduct up to $25,000 on new equipment. But in the past few years, that amount was raised to $500,000. The most recent extension came December 2014 when President Obama signed the Tax Increase Prevention Act (TIPA) of 2014.

    The amount for 2015 has not yet been approved, meaning it is currently only $25,000; however, Congress could vote to increase the amount again this year.

    “Last year they increased the dollar amount to $500,000, but they didn’t do that until the very last minute, because of all the issues with Congress, so this year we’re not sure exactly what they’re going to do; however, I anticipate Congress will vote to increase the 

    Section 179,” says Kate Willeford, CPA, owner of The Willeford Group and Vice President, Academy of Dental CPAs.

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    “It’s hard to say, because the political climate is changing,” adds J. Haden Werhan, CPA at Thomas Wirig Doll in Walnut Creek, Calif. Werhan is also a member of the ADCPA. “We are going into an election season, if you will, with all these candidates and a lame duck President. The economy’s improving. Typically, if they’re going to increase Section 179 it’s a result of negotiating over the budget, making sure that spending is approved for various things so that we don’t have a government shutdown like we did a couple of years ago. Without being able to foresee some of those things a few months in advance, we don’t know.”

    Writing off equipment is nothing new. The tax code has allowed businesses to do it for years. However, the mechanisms put forth in Section 179 are a somewhat unique tool for businesses to leverage their tax position. And whether they opt to use Section 179, other tax mechanisms, or a combination is a matter for the doctor to discuss with his or her tax professional.

    “Whenever you buy a piece of equipment for your practice you’re going to write it off in its entirety, it’s just a matter over what period of time,” says Werhan. “If you spend $200,000 on equipment, and we have this $500,000 Section 179 limit, if you choose to, you can write it all off in one year. At the same time, you might not need that big of a tax write off. You could be wasting a tax deduction by pushing your income with that deduction down into lower tax brackets, and using a deduction to save 25 percent in tax when you could be spreading it out over time and use the deduction to offset 35 percent in tax.”

    More on Section 179: What Section 179 means for you and your dental practice 

    Continue to page two for more..

    Robert Elsenpeter
    Robert Elsenpeter is a freelance writer and frequent contributor to Dental Products Report and Digital Esthetics. He is also the author ...

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