From Biovision’s “Views” newsletter, Issue 4 (April/May 2014)
First-Year Write-Off of Tangible Property Decreased; Bonus Depreciation Eliminated
Deduction Remains an Important Component of Assessing Affordability and ROI
By Marjorie A. Wallwey, Biovision Veterinary Endoscopy
Benjamin Franklin once said, “…in this world nothing can be said to be certain, except death and taxes.” While the existence of taxes remains certain, the amount of those taxes can change seemingly at random. The Section 179 deduction available to business owners under the United States Internal Revenue Service Code provides a prime example.
General business tax practices call for any fixed asset placed in service to be capitalized and depreciated over a set period of time (typically five to seven years) until its book value is zero. Qualified Section 179 deductions, however, allow the entire cost—with certain stipulations—to be taken immediately in the year the asset is placed in service. Such immediate deductions can be valuable as they free up cash for expansion, growth and self-investment.
In 2013, Section 179 permitted business owners to deduct the entire cost of a range of business property in the first year the property was put into use, up to a limit of $500,000 (although several states imposed their own limits). However, this provision expired at the end of 2013 and reverted to the limits stated in the 1986 tax law when the deduction was first introduced. This means that if Congress doesn’t take action, for 2014 and later years, the total amount that a business can expense via Section 179 will be $25,000. The tax provision for bonus depreciation also expired on Dec. 31, 2013.
It is unlikely that Congress will take action to reinstate the ATRA ’12 limit, increase it beyond $25,000, or reinstate bonus depreciation. So where does that leave U.S. veterinary practices and their capital equipment purchases?
- First and foremost, seek advice from your tax professional: You know the specifics of your practice better than anyone; your tax professional knows the specifics of your tax situation better than anyone. He or she will be able to provide you with unbiased advice based on your goals and best interests–whether that means purchasing equipment in 2014 or holding off, claiming a full deduction this year or just a partial deduction to preserve deductions against income in future years, etc.
- Plan capital expenditures wisely, factoring in current and future practice needs, price, return on investment, useful life/depreciation and tax deductibility: If old equipment needs to be replaced to sustain a currently-offered service, the determination is relatively simple. Don’t limit your vision, though. Take time to consider how new equipment or technology could help expand your service lines, add to your skills (even re-igniting your passion for your work), and set your practice apart from the competition for being innovative or offering the highest standard of care. While looming changes in tax law should never be a primary factor driving your capital expenditure decisions, return on investment (ROI) definitely should be. Here’s a basic fill-in chart for making sure your ROI calculation accounts for the Section 179 deduction. For purposes of illustration, we’ve inserted the respective figures for the purchase of a Biovision EndoDiagnostic + Surgical Suite (EDSS) and a Biovision NeedleView Arthro equipment suite.
(click on the images below to view full-size spreadsheets; EDSS is on the top; NeedleView Arthro is on the bottom — NOTE: THESE CALCULATIONS HAVE BEEN UPDATED FOR 2016; SEE HERE FOR EDSS AND HERE FOR NEEDLEVIEW®)
- Finally, if you do buy, time it to take advantage of the current tax law: As long as you start using your newly purchased business equipment before the end of the tax year, you get the entire expensing deduction for that year, whether you started using the equipment in January or December. You’ll want to be sure that potentially-qualifying equipment is both fully paid and put into service before December 31, 2014.