Many practices have come to appreciate how technology helps them deliver the best quality care for their patients and excellent customer service for their clients. Supporting your investment in technology can often require substantial time and resources, and it can be difficult to decide which assets and investments to prioritize.
The good news is that there is assistance available in the form of tax benefits. Small to medium businesses are eligible for tax deductions when purchasing machinery, equipment, and hardware.
Section 179 (of the IRS Code) allows businesses to deduct an asset’s value during the first year of purchase. This is designed to encourage business owners to invest in quality equipment and technology to improve their practice.
Although Section 179 has been around for many years not all business owners are aware of the details and how it can benefit their practice. The deduction amount has also increased over the past few years, so there are bigger benefits for businesses that pursue this option.
Eligible veterinary equipment includes x-ray machines, dental units, therapy lasers and ultrasounds. However, often overlooked is computer hardware. This is an equally important asset to review, as practices use their computers to complete essential tasks every day and can benefit from hardware upgrades.
Equipment that qualifies under Section 179
- Computers and office equipment
- Machinery and equipment purchased for business use (e.g. x-ray machine)
- ‘Off the shelf’ software (e.g. AVImark)
- Other tangible property used for business purposes.
Section 179 does not apply to land, property outside of the United States and intangible property such as copyrights and patents. The Section 179 benefit requires technology and equipment to be purchased, installed and put into service in the same calendar year the value is to be deducted (i.e. between 1 January 2020 and 31 December 2020). There is a tax deduction limit of $1 million and a spending cap of $2.5 million.
Section 179 should not be confused with bonus depreciation, which serves a similar purpose. Section 179 deductions essentially reduce the cost of new purchases, whereas depreciation decreases the remaining cost over its useful life. With depreciation, for example, if a business purchased a machine for $50,000 it might write off $10,000 each year over five years.
Section 179 allows all deductions to be made in the first year. This can help small and medium-sized practices invest in bigger assets to further their ability to grow and increase their capacity. Businesses can benefit from bonus depreciation for costs that exceed the limit and don’t qualify under Section 179.
Section 179 provides an incentive to purchase new hardware so your practice can start enjoying the benefits this year.
Benefits of Section 179 deductions
- New technology and equipment when you need it. The tax deduction makes larger purchases more accessible to smaller businesses, who may need expensive assets to introduce new services to their practice rather than waiting for a better financial position.
- Short lifetime of hardware. Computers and other hardware often have a shorter lifetime compared with larger assets and property, so it makes sense to take the full deductions in the first year if possible.
- Simpler bookkeeping. Deducting the value of your purchases in the first year is easier and tidier than calculating depreciation over the lifetime of the asset.