Start 2021 On a Different Foot - Take Advantage of Section 179 Tax Benefits
2020 has been a difficult year for us all, and we all could use a break - especially on our bottom line. With that said, we at Saorsa ask you: "Why not take advantage of the tax savings the IRS is offering on through the acquisition of new capital equipment for your clinic"?
2020 tax savings is possible through the application of IRS Tax Code Section 179.
What is Section 179?
Section 179 essentially is a tax code designed to allow businesses to deduct the full purchase price of equipment purchased in that tax year. It is an incentive designed by the U.S. government to encourage businesses to buy equipment and invest in themselves.
What is the Timeline for 2020?
Businesses have until December 31st, 2020 to acquire and put in use any new equipment and have it qualify for this tax deduction.
How Much Can I Deduct for the 2020 Tax Year?
If you are the legal owner of the equipment, you may be able to deduct the full cost of any equipment you acquire and put into use in 2019 — up to $1 million. There’s a $2.5 million cumulative multi-year cap for equipment purchases per business. (And if you exceed the $2.5 million spending limit, a bonus depreciation of 100% may apply.)
Example Tax Benefit:
Medical Device Equipment Cost: $26,000 (purchased or leased)
2020 Deduction: $26,000
2020 Tax Savings: $6,760 (Assumes a 26% Combined Rate - Federal [21%] and State Tax Rate [5%])
Net Cost of Equipment After Tax Savings: $19,240
What If I Lease Finance the Equipment? Do I Still Get the Full Deduction?
Absolutely! This is often a great strategy. Capital Lease and Finance Agreements qualify under this deduction, meaning you can make minimal lease payments through the rest of 2020 and still get the full tax benefit. This approach results in a net cash inflow for 2020, as you get the $6,760 tax savings referred to above, and you only make a single lease payment of say $480 in December 2020 -- net cash impact in 2020 of +$6,280
Is There Anything Else I Should Know?
Like any tax deduction, the money needs to be spent in order to qualify for the deduction. For physicians focused on improving outcomes and investing in the latest technology for their practice, Section 179 certainly may be an additional reason to make a purchase before the end of 2020!
Because every practice/physician is in a different situation, it is a good idea to meet with your tax adviser to discuss your personal situation to ensure you are able to take advantage of this deduction.