The Executive Suite: Section 179 for medical practices

Thursday, December 29, 2022

Section 179 for medical practices

Continuing to invest in new equipment and technology has long been one of the key pillars to increasing efficiency, driving incremental revenue, and improving patient care within medical practices. But did you know that you can execute on this while maximizing tax deductions, helping to free up additional cash flow? It is likely you may have heard of Section 179, as it has been around in some form since 1958. However, do you know what Section 179 entails and how it can benefit your practice?

The 101 on Section 179

In its simplest form, Section 179 is a tax deduction for businesses, including medical practices, that receives its name from Section 179 of the IRS Tax Code. Section 179 allows businesses to deduct up to the full purchase price of qualified equipment, technology, software, and other qualifying purchases from their taxes within the same tax year, rather than requiring that the purchase be depreciated over time. By taking a Section 179 tax deduction, practices can receive a larger tax benefit immediately, freeing up additional cash flow to continue investing in the practice.

What qualifies for Section 179

Qualifying purchases for medical practices include typical medical equipment and technology, in addition to other capital purchases such as office furniture, air filtrations systems, and more. While it is never too early to start tax planning, as we approach the end of the year it is imperative that medical practices understand how timing impacts the ability to obtain a deduction. In order to take advantage of Section 179, the equipment must be purchased and placed into service before the end of the tax year and must be used for business purposes 100% of the time.

How your practice can maximize savings

Now let’s dive into what this actually means for your practice and how it works. Let’s say you buy a new piece of equipment or technology in 2022 for $75,000. Provided it is a qualifying asset, you may be able to deduct the entire cost of the equipment from your taxable income. If you are being taxed at a rate of 32%, you can potentially save $24,000 in taxes. Additionally, purchases that are financed are eligible as well, which means you can invest in your practice, benefit from tax savings, and manage your cash flow.

A win-win

The IRS has set strict limits to Section 179 which have changed significantly over time. In 2022, the maximum amount that can be deducted is $1,080,000. Additionally, the maximum amount of qualifying equipment that can be purchased is $2,700,000. However, once you reach that cap, you may be able to deduct the rest of your qualifying purchase under a different section of the tax code commonly referred to a “Bonus Depreciation” or “100% expensing”.

Medical practices can utilize both Section 179 and Bonus Depreciation, provided the Section 179 deduction is applied first. In 2022, Bonus Depreciation is 100% on qualified assets, but will begin to phase out starting in 2023. For qualifying assets placed into service in 2023 bonus depreciation will be reduced to 80% and will decrease 20% each of the following years until being completely phased out in 2027. All the more reason to invest this year.

Investing in your practice

Medical practitioners and administrative staff do not need to be experts in the tax code. A qualified financial services expert should guide you through the options available to you. However, it is vital that you understand the deadlines, so you do not miss an opportunity to maximize deductions and opportunities to invest in your practice particularly with bonus depreciation being reduced starting in 2023.