Section 179 Depreciation ExampleIt’s that time of year already — 2024 is right around the corner, which means there isn’t much time left for making 2023 equipment purchases. Why does this matter, can’t you just buy equipment any time of the year? Obviously, the answer is yes, but if it is something you plan to purchase in the near term, doing so in the 2023 calendar year will provide you important tax benefits now, rather than waiting another year to realize them.

You’ve probably heard the term ‘Section 179 Depreciation’ at some point — this section of the tax code provides small businesses an immediate tax benefit on equipment purchases. In short, 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 Is This Important?

Despite what has been an interesting year for optometry, from up and down months, ongoing staffing challenges and dealing with all the effects of inflation, most practice owners had a decent to strong year financially. As a result, many will close the year with nice profits. With that profit comes a not-so-fun tax bill, so let’s examine how Section 179 might be useful. Suppose you have taxable income of $150,000 for the year and that you purchased a $50,000 piece of equipment.

Taking advantage of the Section 179 depreciation on the $50,000 piece of equipment allows you to reduce your tax bill by $12,500 (assuming a 25% tax rate). These savings are rather significant and contribute to the equipment’s return on investment (ROI)! Section 179 is why you hear equipment vendors talk about the importance of timely purchases around the end of the year.

A Few Key Points

  • To be eligible for the 2023 tax year, the equipment must be acquired (lease, loan, or cash purchase all qualify) and placed in your office before the end of the 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 as longer lead times are common these days.
  • 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 practice owners to offset a tax bill. Now this 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 your practice’s cash flow is tight, the additional monthly loan payment will interfere with your regular business operations, or the ROI still doesn’t add up, it isn’t worth it. Whether the goal is a positive return on investment, better office flow, or a more technologically advanced practice, the first step is to make certain that the equipment acquisition is a wise decision. If you can check that box and the purchase price or loan/lease payment also makes sense, then take advantage of the Section 179 deduction (and likely an end-of-year special from the equipment vendor).

Have questions on whether an equipment purchase makes sense for your office? Schedule a conversation with Kathy Long, PECAA’s Business Operations Advisor or Bryan Hoban, PECCA’s Member Business Manager, to talk through the ROI and impact on your practice.

Looking to purchase equipment? Take advantage of exclusive PECAA member offers from our equipment vendor partners.

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