EQUIP YOUR PRACTICE NOW AND SAVE WITH 2011 TAX INCENTIVES
The next few months are perhaps the best time we’ve seen in decades to invest in your dental practice. Thanks to the Tax Relief Act of 2010, the 2011 IRS Section 179 tax deduction for equipment purchases is bigger than ever at $500K. But it declines significantly starting next year. So if you’re considering purchasing equipment or software for your dental practice, do it now!
Incentive for Small Business
Section 179 is an incentive created by the U.S. Government to encourage business owners to invest in their companies through equipment purchases. The goal of the legislation is to provide genuine tax relief for small businesses, and since its introduction millions of small businesses have taken advantage of Section 179 and are gaining real benefit. Under the code, if you buy or lease qualifying equipment, you can deduct the full purchase price of the equipment from your gross income, saving you potentially thousands of dollars on the actual cost of the equipment.
Typically businesses can write off major purchases over a period of five years. For example, equipment that costs $100K might be depreciated at a rate of $20K per year for five years. But it’s a greater advantage to be able to deduct the entire cost of equipment in the year the purchase was made. Businesses might even make more equipment purchases with this type of incentive.
That’s exactly why Section 179 was created – to provide incentives to small businesses and help keep the U.S. economy moving forward.
How Section 179 Works
Under Section 179, businesses can deduct the full cost of qualifying equipment and/or software purchased or financed during the tax year, up to the maximum Section 179 Deduction Limit. “Bonus” Depreciation is offered on new equipment purchase amounts above the Deduction Limit, and there is a cap to the total amount of equipment purchases that qualify for the deduction.
– 2011 Deduction Limit – $500K (up from $250K previously). Deduction can be used on new and used equipment, including new software.
– 2011 “Bonus” Depreciation – 100% (up from 50% previously). Taken after the $500K deduction limit is reached.
– 2011 Limit on equipment purchases – $2 million (up from $800K previously).
There are limits to the Section 179 deduction. In addition to the cap of $500,000 in deductions for 2011, the deduction begins to phase out dollar-for-dollar after $2 million is spent by a given business (making it a true small and medium-sized business deduction).
Sample Section 179 Deduction (adapted from www.section179.org):
|2011 Equipment Purchases||$650,000|
|First Year Write Off||$500,000||Maximum for 2011|
|Bonus First Year Depreciation||$150,000||On remaining value:$650K – $500K = $150K x 100% = $150K|
|Normal First Year Depreciation||$0||20% depreciation in each of 5 years|
|Total First Year Deduction||$650,000||$500K + $150K + $0 = $650K|
|Tax Savings||$227,500||Assume 35% tax rate; $650K x 35% =$227.5K|
|TOTAL EQUIPMENT COST||$422,500||$650K less all tax deductions of $227.5K|
Most tangible goods including off-the-shelf software and business-use vehicles (with some restrictions) qualify for the Section 179 deduction. Equipment and software must be placed in service during the tax year for which the deduction is taken in order for the deduction to apply. But you don’t necessarily have to pay for the equipment in the year it is deducted. You can purchase and install new equipment in December, write off the full purchase amount in 2011, and start paying the financing on your equipment in 2012 using some of the savings from your deduction!
So now is an excellent time to upgrade your practice with the latest in dental equipment and software. It’s unlikely you’ll find a better opportunity to build your business with significant financial assistance from the U.S. Government.
To download a copy of this article, click here: Equip your Practice Now Save with 2011 Taxes