Section 179 Depreciation and How to Use This as an Incentive for End-of-Year Equipment Purchases
By: Bryan Hoban, PECAA MBA Manager

Winter is coming and unlike Game of Thrones, it will be here before you know it. What does this have to do with optometry? Aside from bringing what is hopefully a great 4th quarter for our businesses, it is also the time of year that you’ll be hearing a lot about taking advantage of Section 179 depreciation.

So, what is this Section 179 that we hear about every year? It is the ability to take the full depreciation expense for an asset purchase (typically equipment in the optometry world) immediately rather than over the normal 5-7 year period. If an office were to purchase a $50,000 piece of equipment, rather than having $10,000 annually in depreciation expense over the course of a 5-year period, you can take all $50,000 this year! Why does this matter? The optical world has recovered well from the COVID pandemic, and most offices have had a very nice 2021 (aside from trying to fill open staffing positions!). This means that most of you will have a nice profit at the end of the year. With that nice profit comes a not so nice tax bill. Let’s look at how Section 179 might help here. We’ll say that we have taxable income of $150,000 for the year and we purchased that $50,000 piece of equipment.

By purchasing the $50,000 piece of equipment and taking advantage of the Section 179 depreciation, we have been able to reduce our tax bill by $12,500 (assuming a 25% tax rate). Not a bad savings and helps the return on investment (ROI) of the equipment! This is why you hear equipment vendors talking about making sure purchases are made in a timely manner as you approach the end of the year. An important piece here is that the equipment must be purchased (cash purchase, loan or lease all qualify) and in place in your office before the years end to qualify for the 2021 tax year.

If you are considering making a purchase, make sure that you are working with the vendor to ensure that the equipment arrives on time. One common question is around used equipment. To qualify for Section 179, the equipment only needs to be “new to the practice”. Therefore, used equipment that is a new purchase/lease for the practice will qualify.

Utilizing Section 179 is one of the most common tax strategies employed by doctors to offset a tax bill and one that we will be utilizing in my wife’s office. She has a NeuroLens arriving at the end of the month. Now that doesn’t mean you should outfit the entire office with brand new toys. At the end of the day, the equipment still needs to be paid for! If cash flow is tight and that extra monthly loan payment is going to affect your daily business operations or the ROI still doesn’t make sense for your office, it isn’t worth it. The first step is making sure that the equipment purchase is a good move for the office, whether that be a positive ROI, improved office flow or enhancing the technologically advanced feel of the practice. If you can check that box and the purchase price or loan/lease payment also make sense, the take advantage of the Section 179 and likely an end of year special from the equipment vendor! Have questions on if an equipment purchase makes sense for your office? Please reach out to schedule a conversation with me to talk through the ROI and impact on the business.

PECAA Equipment Partners:

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