01 Nov Practice Management: Maximize the Tax Deduction You’re Forgetting
Not sure what business expense qualifies as a tax deduction in 2018 for your eye care practice? The clock is ticking away to maximize Section 179 tax deductions for 2018. You’ll want to read this if you’re planning to purchase or lease ophthalmic diagnostic or office equipment, computers, office furniture, or practice management and EHR software before the end of the year.
Don’t let the words “taxes,” “deductions,” and “depreciation” cause you to panic. Here are the answers to frequently asked questions about Section 179. By the time you run through these FAQs, you’ll be on your way to saving thousands of dollars on your 2018 tax deductions.
What are Section 179 deductions?
Section 179 of the IRS code benefits small or medium-sized businesses. Instead of deducting a portion of the qualified capital expenses or expenditures over the term of an asset’s useful life, you deduct the full purchase price in the first year. Up to $1 million of qualifying expenses that you put into use between January 1 and December 31, 2018, may be eligible for Section 179 deductions.
The IRS has two requirements for Section 179 deductions:
- The property must be tangible, depreciable, and used for business.
- The property must be purchased and put into service in the year you claim the deduction. For example, if you purchase computer software on December 28, 2018, and you don’t start using it in your practice until January 3, 2019, you cannot deduct this expense using Section 179 in 2018.
How did the “Tax Cuts and Job Act” affect Section 179 deductions?
The new Tax Cuts and Jobs Act (TCJA) signed on December 22, 2017, brought several positive changes and higher deductions to Section 179:
- In 2017, the deduction cap was $500,000, but in 2018 it doubled to $1 million.
- According to the IRS, the new law increased the phase-out threshold (spending cap) from $2 million to $2.5 million.
- For taxable years beginning after 2018, the amounts of $1 million and $2.5 million will be adjusted for inflation.
- The optional first-year bonus depreciation amount for new and used equipment is 100%, which is typically used after you reach the Section 179 spending cap. Refer to the 2018 IRS Publication 946 on how to depreciate property.
- This tax reform bill expands deductions for qualified improvement property and certain specified improvements to nonresidential real property. For example, businesses can now elect to deduct the cost of roofs, HVAC (heating, ventilation, and air-conditioning) systems, and fire, alarm and security systems that were placed in service beginning January 1, 2018.
How much can you save with Section 179 in 2018?
Section179.org has an easy to use calculator that will help you estimate your tax savings for 2018.
What type of off-the-shelf computer software qualifies?
Off-the-shelf computer software, such as MaximEyes EHR (cloud or local server option) and practice management software you purchase and put into service at your optometry or ophthalmology practice, qualify for the Section 179 deduction. Other software applications or suites, such as Microsoft Office 365, Adobe Creative Suite or G Suite by Google Cloud also qualify.
What types of equipment or tangible personal property qualifies?
The following new and used equipment or tangible personal property qualifies for the Section 179 deduction (this is not a complete list):
- Office furniture
- Office equipment
- Fax machines
- Ophthalmic diagnostic equipment
What is the Section 179 “50% business use” requirement?
To qualify for the Section 179 deduction, you must use the equipment, software, and/or other qualified property for business purposes more than 50% of the time in the year you place it into service. According to the IRS: “If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use.”
When does Section 179 expire for 2018?
Section 179 for the 2018 tax year will expire at midnight on December 31, 2018. Remember, you must purchase and put the qualified software, equipment, and other tangible personal property into use by December 31, 2018 to qualify.
What IRS form do you need to complete for Section 179?
You will need to complete Part 1 (Election to Expense Certain Property) of the 2018 IRS Form 4562 to claim your deduction for Section 179 and attach the form to your tax return.
Important Reminder: You must keep detailed records of any software, equipment, and personal tangible property you leased or purchased during the year, including where you purchased the property, the date you started using it, and all costs associated with the purchase (such as shipping, setup, etc.).
A Practice Management Investment That Will Benefit Your Business
At First Insight, we think a successful EHR and practice management system installation starts by understanding your objectives and long-term business needs.
We get it, running a busy eye care practice is never easy. Which is why having technology in place to support your practice is so important…and, as we just mentioned, if you qualify for Section 179 deductions, your software investment will bring you additional benefits.
Ready to make your office more efficient and reap the rewards of Section 179 before the clock stops ticking for 2018? Request an online demo of MaximEyes software today.
Important: Always consult your accountant or tax professional for tax deduction advice for your eye care practice. First Insight does not guarantee that you will qualify for tax deductions, only that Section 179 allows for certain tax deductions for qualifying businesses. For more information about Section 179, refer to the IRS Publication 946 website.