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    What dentists need to know about taxes in 2016

    Dentists should stay up-to-date about changes to tax cuts, stimulus packages and other important tax information.

    Tax extenders! They have been in the news every year since the expiration of the Bush tax cuts and various other tax and economic stimulus packages. Without the passage of tax extenders in recent years, dentists would have had higher taxes. These temporary tax provisions expired at the end of 2014 but, as expected, new tax extender legislation has been passed.

    On December 18, Congress passed and the President signed into law the "Protecting Americans from Tax Hikes (PATH) Act of 2015," and the "Consolidated Appropriations Act, 2016," funding the government and providing a number of significant tax changes. The most notable aspect of this legislation is that unlike previous tax extender packages, the PATH Act makes most of the provisions permanent – and retroactive for 2015. Most notable for dentists, and their good friends who sell dental equipment and technology, are the rules for writing off those purchases.

    More from J. Haden Werhan: Goodwill hunting: Branding and tax implications

    Here are some of the highlights:

    Section 179

    The Act retroactively extends and makes permanent the $500,000 expensing limitation and $2 million phase-out amounts. Both the $500,000 and $2 million limits are indexed for inflation. Without the PATH Act, Section 179 would be limited to $25,000 and the phase-out amount $200,000. If one exceeds the phase-out amount in any given year, they are not eligible to use Section 179 that year.

    For dentists building new offices, the $200,000 phase-out limit was a significant problem. In addition, qualified leasehold improvements (see below) are eligible for the Section 179 deduction. The dollar limit was $250,000 but the PATH Act removes that ceiling starting in 2016. So, a dentist who made qualified leasehold improvements in 2015 may take a Section 179 deduction of up to $250,000. For improvements made in 2016, the limit is the same as above - $500,000.

    There are a variety of factors and rules to take into account when contemplating the use of Section 179 including one’s tax situation, the amount of debt taken on to making those improvements, and, for those dentists with S. Corporations, the income and basis in the corporation.

    More on Section 179: Congress passes Section 179 extension ... what that means to you and your dental practice

    Leasehold improvements

    The Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property in the 15-year depreciation schedule. Qualified leasehold improvements are those made by or for a lessee, not an owner/user. Dentists who rent space will depreciate improvements over 15 years but those who own their space (dental condo, free-standing building, partnership interest, etc.) must still use a 39-year depreciation schedule.

    Therefore, it is important for such owners to have a Cost Segregation Study performed to re-allocate improvements into shorter depreciation categories as appropriate. Also starting in 2016, The 2015 PATH Act removes language in the tax code that excludes air conditioning and heating units from being Section179 property. Previously, HVAC units were depreciated over 39 years.

    Continue to page two for more...

     

    J. Haden Werhan, CPA/PFS
    Feel free to contact J. Haden Werhan, CPA/PFS, principal and owner of Thomas Wirig Doll, an accounting and wealth management firm that ...

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