The IRS Section 179 tax deduction is designed to encourage business owners to invest in equipment or technology and can result in significant savings for your practice. And now, the deduction has been extended permanently, until further notice, allowing you to deduct up to $500,000 in qualifying expenses annually during the first year of ownership. How does it work? For instance, the tax code indicates a new exam table should last five years. As such, you are allowed to deduct one-fifth of the cost annually on your return until the cost has been fully depreciated. The same tax code allows for a full deduction in the current year within code Section 179. For example, if you purchased $300,000 in equipment and placed it into service in a single year, you would take the full deduction ($300,000) immediately, plus depreciation in subsequent years ($60,000 per year). What is a Bonus depreciation? Bonus depreciation is a deduction that is allowed on equipment that has not been recognized under Section 179 — any amount over $500,000 and below the $2 million threshold. How much can be deducted? Half of the cost to acquire. What are the Qualifications for Section 179? Any practice that purchases, finances or leases less than $2 million in new or used equipment for their business during tax year 2016 should qualify for the Section 179 deduction. 3 Golden Rules:

  • The deduction is allowed only in the year that the asset is “placed into service.” This means the year in which the equipment is ready for use, not the year in which the equipment is purchased.
  • Section 179 applies to personal property, such as equipment and technology, and potentially leasehold improvements. Nothing further.
  • The deduction is limited to $500,000 of equipment purchases in a single year. Equipment that qualifies for the deduction, but exceeds $500,000 can be depreciated across future tax years. The deduction isn’t lost; it’s simply delayed.
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