With year-end approaching, our pals, the dental supply sales people, will be espousing the benefits of Internal Revenue Code Section 179 Depreciation.
Section 179 is $500,000 this year (2013). Another method of accelerating the write-off for equipment purchases is Bonus Depreciation (50% of qualified purchases). Both are great tools when used properly. With all the moving parts in the new tax law, there is no correct answer for everyone. Accordingly, your Dental CPA should be consulted before you sign on the dotted line for any equipment purchases!
Remember, equipment (any business asset) may begin being written off (depreciated) when it is placed into service. When or how you pay for something has no bearing on this whatsoever… Also, there no limits as to the current year deductibility of equipment purchases under Section 179 for dentists operating as Sole Proprietors or in a Partnership other than it may not be used to create a loss. Any amount elected that is not deductible in the current year is carried forward to the next year. So if you have Net Income of $100,000 and new equipment purchases of $120,000, only $100,000 may be depreciated (deducted) under Section 179. The remaining $20,000 is not lost; it carries over to the next year. The other option is to depreciate the $120,000 over 5-years. If your purchases are financed, this may be a better choice since principal payments on loans are made with after-tax dollars.
For dentists in S. Corporations, Section 179 is treated very differently due to “Basis” rules that apply to those corporations and their shareholders. Further, any allowable deduction under Section 179 flows through from the S. Corporation to the Shareholder’s individual tax return via Form K-1. This is tricky stuff which is why you need to call your Dental CPA and ask, “What’s my Basis” before committing to any significant equipment purchases.