It’s Not Too Late … But It’s Time to Hustle
Bet you’re like most everyone … as the Holiday Season approaches, we all tend to say, “Where did the year go?” More central to this article is “Where did the 2017 Tax Year Go?”
And that brings us to the topic at hand, your potential to save big-time on your 2017 tax bill. That prospect is the significant tax advantages of the Section 179 deduction … but only if you act by December 31, 2017.
The Opportunity and the Payoff
Section 179 is one of the few incentives of the recent Stimulus Bills that actually helps and favors small businesses with much needed tax relief.
Businesses may elect to immediately deduct the full purchase price of qualifying equipment and/or software up to a maximum of $510,000. To meet the tax deductibility requirements, the equipment must be financed or purchased and placed in service by December 31, 2017, and used for business purposes more than 50% of the time.
All businesses that purchase, finance, and/or lease less than $2,030,000 in new or used business equipment during tax year 2017 should qualify for the Section 179 Deduction. This accelerated deduction is available on the first $2,030,000 of equipment purchased in 2017. Thereafter, the deduction to your company begins to be reduced on a dollar for dollar basis.
Another example of Section 179 being a boon to small businesses.
See IRS announcement of What’s New for 2017
Most tangible equipment qualifies … and that includes both new and used (refurbished or reconditioned) medical equipment.
That means that if you buy (or lease) a piece of qualifying equipment, you can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in their company.
This excellent tax break becomes even more advantageous for many businesses if they choose to lease or finance their Section 179 equipment. The tax savings often exceed the first year’s payments, which translates into a purchase that proves profitable in the current tax year.
Effectively, a Section 179 deduction is an opportunity to invest in your company by adding capital equipment. A parallel benefit of the deduction helps you preserve capital.
A Real-World Example
OK. Let’s sum up the benefits. Assume the purchase of a refurbished Steris Century Series Small Sterilizer at a cost of $25,000.
Without a Section 179 deduction, the likely scenario would be for a company to depreciate the equipment over several years. . With the current Section 179 deduction – the full $25,000 purchase price is immediately deductible in the 2017 tax year.
Now let’s assume that the sterilizer is financed as a $1 buyout lease at $840 per month. If the equipment is acquired and put into service before 11:59 PM on December 31, 2017, one monthly payment of $840 transforms into a $25,000 tax deduction. Assume a 35% tax bracket and that means $8,750 in tax savings which when subtracted from the sales price yields an out-of-pocket acquisition cost of $16,250.
Alternatively, the sterilizer could be bank financed. The same immediate $25,000 tax deduction would apply with the benefit of repaying the loan over several years.
Take a moment and make this up close and personal. Use this Section 179 Calculator to estimate the value of Section 179 based on buying or leasing equipment you’ve been thinking about.
Notably, the tax deduction is good on new, used and refurbished equipment.
A More Robust Example
Here is a more dramatic example of Section 179 at work during this 2017 tax year.
Section 179’s “More Than 50 Percent Business-Use” Requirement
The equipment, vehicle(s), and/or software must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179.
The Case for a Sense of Urgency
Section 179 tax breaks have historically been a function of shifting political and regulatory winds. The current deduction of $510,000 for 2017 is the richest to date. What will it be next year … anyone’s guess? So if you are anticipating the purchase of qualifying equipment, now is the time to move on that decision.
Remember – regardless of the deductible amount, the equipment must be purchased and in service by the end of the 2017 tax year to qualify for the Section 179 deduction. That means major consequences as it relates to capital investment, deductions and depreciation.
That said, given the time of year, it is important to have a game-plan in place to move on tax savings opportunities that now require rapid decision-making and execution. The payoff is to maximize tax savings, lower operating costs and retain capital.
Be Nimble and Win
Reminder: To meet the tax deductibility requirements, the equipment must be purchased and placed in service by December 31, 2017. At this time of year, that means being in a position to have nearly minute-to-minute expert guidance and direction from both your medical equipment supplier and your tax advisor.
Certainly, arrange a meeting with your tax advisor and medical equipment supplier (Auxo Medical stands ready to serve!) to decide on your purchases. Take this step now, and you will better ensure purchase, delivery, installation and operating equipment by the deadline of December 31, 2017.
Certainly worth an immediate conversation with both!