Why you should (or shouldn't) buy that new piece of equipment just because you're hungry for a tax benefit. (Did you remember we have a new president coming with tax ideas of his own??)
Fishing for a tax break? Before the financial fur flies, ask yourself three questions, courtesy of tax accountant Tom McFerson. (Getty Images)Regardless of the presumed tax law changes coming down the pike in 2017 (you didn't miss the new president, right?), I still think the decision to buy or not to buy a large piece of equipment before the end of the year boils down to three important questions, in this order of importance:
Question 1: Will the equipment make your veterinary practice money?
Question 2: Will buying the equipment put a financial strain on your business?
Question 3: What are the tax benefits related to this acquisition (Section 179)?
Wait, remind me what Section 179 is again?
Section 179 is the ability of a business to expense up to $500,000 in new equipment in the year of acquisition. In the past, the expiration of the tax provisions surrounding Section 179 was always in question. Thankfully, the law was permanently extended in December 2015 as part of the Protecting Americans from Tax Hikes Act of 2015. Bonus depreciation-the ability of business owners to depreciate up to 50 percent of all newly acquired equipment-was also extended through 2019.
Assuming the answer to Question 1 is "yes" and Question 2 is "no," then all that's left is whether you should rush to buy now for a tax benefit. All things being equal (practice revenue and expenses remain consistent from year to year), the answer is probably yes. It's a safe assumption that tax rates will likely drop in future years under President Trump, so these potentially lower rates make the 179 deduction more valuable in 2016 than in future years.
Remember, to qualify for the 179 deduction, the equipment needs to be paid for in cash, financed or acquired through a capital lease (typically with a $1 buy-out). Also remember, to qualify for the 179 deduction, the equipment must be placed in service by the end of the year.
Now go talk to your accountant about it. If I'm your accountant, talk to me.
Tom McFerson, CPA, ABV, is partner at the veterinary accounting firm Gatto McFerson in Santa Monica, Calif.