The Pulse Of Veterinary Medicine
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This material has been prepared for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax advisor regarding its application to your specific situation.
Section 179 of the IRS tax code addresses how business owners deduct the purchase of big-ticket equipment on their tax returns. At the very end of 2015, the limit for deductions was raised from $25,000 to $500,000. (That’s a 1900% increase!) For veterinary practices, these purchases—even those financed through a lease agreement—represent a terrific opportunity to save big on taxes.
If your practice is going to owe federal income taxes this year, Section 179 can help build your business and reduce your tax liability at the same time.
Section 179 is all about capital investment. Capital refers to durable goods, big-ticket items like the Catalyst One Chemistry Analyzer, the ImageVue DR50 Digital Imaging System, or new hardware to support practice management systems, such as Cornerstone. Smaller or disposable items like staplers or syringes are also tax deductible, but are not considered as part of Section 179.
Usually, when your business purchases a piece of capital equipment, you can deduct a certain percentage of its value each year for five years through ordinary depreciation methods.
Section 179 puts depreciation on the fast track, allowing up to 100% of the purchase price to be tax-deductible in the year of purchase. So you can invest in a new piece of lab equipment and significantly reduce the amount of federal income tax you’ll owe this year. This is true even if you purchase through a $1 buyout lease instead of using cash.
Save and grow
Consider this example: Lincoln Animal Hospital has $500,000 in revenue and shows a profit of $100,000 at the end of the year. If their combined state and federal tax rate is 30%, they would owe $30,000 in taxes on that $100,000 of profit.
But let’s say they invest in the Sedivue Dx Urine Sediment Analyzer by purchasing with a $1 buyout lease. Under Section 179, the entire $20,000 cost of the analyzer can be deducted from their profit for the year, reducing their taxable income to $80,000. This investment would reduce the hospital’s income tax burden from $30,000 to $24,000, saving $6,000 that otherwise would have to be paid to the government.
Seize the day
With the 2016 deduction limit now set at $500,000, veterinary practices could potentially invest in a full lab suite and a digital radiography system to save even more money.
For example, if Lincoln Animal Hospital adds a Catalyst One analyzer, Cornerstone software, and an IDEXX I-Vision CR Digital Imaging System to their lease, they may eliminate their income tax burden for the year entirely. And they’ll dramatically enhance their diagnostic capabilities, paving the way for healthy practice growth in the years to come.
The question is, how will you leverage Section 179 to grow your practice?
Again, this is informational only. Talk with your tax professional to understand IRS tax code Section 179's application to your specific situation, and visit this page to learn more. And your IDEXX Veterinary Diagnostic Consultant can help guide you on investing in IDEXX products and services.