As we approach the year’s end, JTECH Medical thought it would be helpful to delve into some of the financial aspects of purchasing equipment for your practice. To this end, we sat down with Phil McStotts, CPA, CGMA, to talk about issues ranging from deciding whether or not to finance your equipment to what tax advantages may best suit your needs.
Phil McStotts has over 30 years of experience - 27 of which have been with medical device companies, including ZEVEX International, TherImage, and Domain Surgical. We hope that what follows is a helpful overview of tax codes and options, but we would stress that you consult your own tax professional to determine the best options for you and your business.
Can I deduct the cost of equipment that I buy to use in my business?
Short answer: Yes, and there are two methods you can use.
The first option is to capitalize and depreciate under code section 167 using the Modified Accelerated Cost Recovery System (MACRS). JTECH’s devices are most likely five year life assets, and you can find the table published by the Internal Revenue Service (IRS), which lists the depreciation percentages each year.
The second option is to capitalize and expense the equipment under code section 179. This allows you to write off up to 100% of the equipment purchases, but includes some caveats. You can only elect this option if you have net income, and the expense will only be applied to the extent of this net income.
Who is eligible for the Section 179 deduction?
According to www.section179.org, "All businesses that purchase, finance, and/or lease less than $200,000 in new or used business equipment during tax year 2015 should qualify for the Section 179 Deduction."
Does the Section 179 deduction apply if I finance my equipment?
Yes. For the purposes of the deduction, it doesn’t matter whether you finance the equipment or purchase it outright. The only thing that matters is the date in which it is placed into service.
What are some of the limits for the 179 deduction?
Section 179 does come with limits - there are caps to the total amount written off ($25,000 for 2015), and limits to the total amount of the equipment purchased ($200,000 in 2015). The deduction begins to phase out dollar-for-dollar after $200,000 is spent by a given business, so this makes it a true small and medium-sized business deduction.
As far as time limits are concerned, you simply need to purchase it before the end of the fiscal year. If you purchase it on December 31st, for example, it will still qualify for the deduction.
Another point to consider is that purchases for the 179 deduction cannot create a loss in the business. You should consult a tax professional for guidance about the limits of Section 179.
What do I need to do to elect Section 179 on my tax return?
To elect the Section 179 deduction, you need to fill out Part One of IRS form 4562, but your tax professional or software will guide you through the process step-by-step.
Can JTECH Customers receive a credit under the American Disability Act (ADA) for products that provide accommodations?
Based upon a liberal reading of the tax code under section 44, an aggressive approach would allow you to take this credit. The credit may not cover the entire purchase, but it may cover part.
It is important that you consult your own tax professional to assist you with the determining whether your purchase qualifies and the calculation of this credit.
Are there both tax advantages and cash flow advantages to financing on-site through JTECH?
There are definitely cash flow advantages to financing. When you finance, you are required to put less money down up-front, and you could still be allowed to write it off at 100% under Section 179.
With the potential credit from the ADA, you could end up with a win-win, which can result in positive cash flow for the year of purchase. It’s important to remember: the tax advantages all come for the year in which the equipment is purchased.