2 EXCELLENT TAX BREAKS…

2 EXCELLENT TAX BREAKS FOR BUYING OR LEASING MEDICAL EQUIPMENT AND/OR SOFTWARE IN 2016

Section 179 is not a new surgical procedure … it is a significant opportunity to increase your tax savings while upgrading or acquiring needed medical equipment. Additionally, Section 179 may prove to be extremely profitable to your hospital. Here’s how it works.

Frankly, it’s relatively simple. In December of last year, Congress expanded the provisions of Section 179 and made them permanent for the 2016 tax year.

That means businesses, including medical facilities, may elect to immediately deduct the full purchase price of qualifying equipment up to a maximum of $500,000. This accelerated deduction is available on the first $2,000,000 of equipment purchased in 2016.

To meet the tax deductibility requirements, the equipment must be placed in service by December 31, 2016, and used for business purposes more than 50% of the time.

Bonus Depreciation of new equipment is generally elected as a tax savings enhancer once the $2,000,000 spending cap is reached. That means you may immediately depreciate 50 percent of the cost of equipment acquired and put in service during 2016.

Most tangible equipment and software qualifies … and that includes both new and used (e.g. demo models) medical equipment.

These excellent tax breaks become even more advantageous for many hospitals when they choose to lease or finance their qualifying Section 179 equipment. The tax savings often exceed the first year’s payments. That translates into a purchase that proves profitable in the current tax year.

Effectively, a Section 179 deduction is an opportunity to invest in your hospital by adding capital equipment on a tax-favored basis. A parallel benefit of the deduction helps you preserve capital when purchasing needed equipment and software. Effectively, you enjoy an opportunity to take advantage of legal tax incentives to help lower your hospital’s operating costs.

Section 179 Benefits – Regardless of the Size of Purchase

Let’s sum up the benefits in two examples of medical equipment purchases … one relatively modest and another of a significant amount.

Assume the purchase of a single item of medical equipment at a cost of $25,000. Without a Section 179 deduction, the likely scenario would be for the hospital to depreciate the equipment over several years. In contrast, the current Section 179 deduction permits the full $25,000 purchase price to be immediately deductible in the 2016 tax year.

Now let’s assume that the above noted medical equipment 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, 2016, one monthly payment of $840 converts to a $25,000 tax deduction.

Assume a 35% tax bracket and that transaction translates to $8,750 in tax savings. Subtract the tax savings number from the sales price and you enjoy an out-of-pocket acquisition cost of $16,250 for a $25,000 purchase.

The results will be similar if bank financing was chosen rather than a lease. The same immediate $25,000 tax deduction would apply with the benefit of repaying the loan over several years.

Contrast the above scenario with what would likely happen in the absence of the Section 179 deduction. The hospital would probably depreciate the equipment over several years … let’s assume five at a straight-line depreciation of $5,000 per year.  Now, apply the Section 179 deduction and the full $25,000 purchase price is immediately deductible in the 2016 tax year.

Here’s an example of a more robust purchase as illustrated on the Section179.org website. You will see the net effect of the benefits of both the first year tax deduction of $500,000 plus the 50% bonus depreciation for the equipment purchase in excess of $500,000. A $650,000 purchase ends up as an out-of-pocket acquisition cost of $443,500.

Purchases of individual items of medical equipment, up to a total of $2,000,000, yield similar benefits for each article.

Bottom-line: Whether your needs are to upgrade existing medical equipment or acquire new, now is the time to consider the benefits of Section 179. That is true whether the dollar amount of your anticipated purchases are relatively modest or more substantial in nature.

Take a moment and make this up close and personal. Use this Section 179 Calculator to estimate the value of Section 179 tax savings based on buying or leasing medical equipment you’ve been thinking about. Click Here

As a help, contact Strickler Medical for pricing and delivery options that will fulfill your medical equipment needs plus meet the delivery schedule to satisfy the end-of-year tax benefits deadline.

Remember!  Regardless of the deductible amount, the equipment must be purchased and in service by the end of the 2016 tax year to qualify for the Section 179 deduction. That means major consequences as it relates to capital investment, deductions and depreciation.

That said, there is a sense of urgency for you to initiate a purchasing game-plan if your intent is move on Section 179 tax savings opportunities. With the year-end imminent, it doesn’t leave much time for action. The payoff is to maximize tax savings, lower operating costs and retain capital.

Certainly, arrange a meeting with your medical equipment supplier (Strickler Medical stands ready to serve!), internal decision makers and tax advisor.  By taking this step now, you will better ensure purchase, delivery, installation and operating equipment by the deadline – end of the day December 31, 2016.

Certainly worth an immediate conversation with all stakeholders.

 For the full text of Electing the Section 179 Deduction visit https://www.irs.gov/publications/p946/ch02.html