It’s tax-filing season, and I have yet to file my taxes for 2015, wondering if it’s worth filing it myself with all the fancy tax return online software, or if I should just pay an accountant to do it for me. But the good news for business owners who invested in any equipment, whether it is a machinery, dental equipment, or a computer, is that they can take advantage of Section 179 this year and save money. According to the Section179.org website, the House and the Senate passed the “Protecting Americans from Tax Hikes (PATH) Act of 2015” in January, which expanded the Section 179 deduction limit to $500,000.
For those of you who have no idea what that means, the Section 179 provision allows small businesses, such as dental clinics, to write off the cost of an asset, such as dental equipment, in order to save tax dollars. For example, most dental equipment depreciates over 5 years, and the provision allows a dentist to deduct the full cost of the equipment as an expense, rather than depreciating the value of the equipment. This, in turn decreases the dentist’s net income and results in a higher tax return. Going back to the history of Section 179, since 2010, the tax code had a maximum limit of $500,000, but in the 2014 tax year, the deduction level fell to $25,000. The American Dental Association sent over 8,500 emails to Congress urging them to extend the provision, and the provision was eventually extended retroactively for the year 2014. However, this meant that dentists were not aware of this benefit during the year and were therefore not able to plan their equipment purchases accordingly. The PATH act now leaves the Section 179 limit as $500,000 permanently, which means that dentists know in advance that they can take an advantage of this code. Without the passage of the Act, the write off amount would have went back to $25,000 for 2015.
What does this mean for consumers like dentists? Assuming a dentist purchases Sirona’s chairside CEREC CAD/CAM machine at a price of $100,000 and assumed an income tax rate of 35%, the net cost will be $65,000 after tax savings of $35,000. Section 179 has a handy tax deduction calculator online, although a CPA would have to get into details for other rules and depreciation formulas. However, this does not necessarily mean that business owners should readily purchase equipment they’ve been eyeing, but that they should first educate themselves and stay up-to-date about the provision and talk to their CPAs about how to make it work for them in order to optimize tax deduction.
What does this mean for the manufacturers? To answer this question, we must think, first of all, how much awareness is there among the consumers? Although dentists who belong to an organization, such as the American Dental Association, would have heard about Section 179, your average dentist is likely not knowledgeable enough about this act to actively take advantage of this. As a result, it is important for manufacturers to raise awareness and provide information to dentists on how to develop their practice with equipment upgrades while saving money with the Section 179 deduction. Some companies, such as Patterson Dental, already have sales representatives educating clients about how to take advantage of this to invest in their practice. Henry Schein also has a website page that explains the benefits of Section 179. Other sales teams can use this as a strategy to encourage cost-conscious dentists to purchase or loan new equipment, whether it is a CAD/CAM machine, or a cone beam CT scanner.
To conclude, certainty about how much dentists can deduct for new equipment will make it easier for dentists to make a decision. However, this also means that now that they know they will always have the tax benefit, they may choose to wait for next year when better equipment come out. In the end, it’s good news for growing practices. Now that you know, should you invest in new dental equipment?