"Deductions matter, right?" Section 179 expensing and equipment purchases

Taxes: you're probably not comfortable with them anyway, but now's not the time to start kicking back.

When it comes to section 179, the one thing you can be certain of is that it will change. Luckily for purchases made in 2014, this change was an increase to $500,000. Equipment purchases within this threshold qualified for the section 179 advanced tax schedule; subsequently, the tax rate calculated would be the applicable tax bracket. Most often, that number is 38% for dentists, but will depend on advice from your accountant.

In 2014, purchases suggest section 179 fluctuations had minimal effect because numbers were up. The equipment and technology segment-especially as it has gone digital-has led to larger purchases. Bundled purchases are big-ticket items, but they generally also have sensible bulk discounts.

Right on cue, our section 179 deduction is back to $25,000 for 2015. Accountants are dealing with an expected pile of paperwork, but their interests now are in the purchases of last year, not the investments of the current one.

Dentists should be aware that this ebb and flow happens every year, independent of tax law or section 179 changes. Capital investments of any real size will have a clinical effect as well as a business impact, and those decisions should be carefully weighed. But, I am still betting that we have another end-of-the-year crunch in only ten months or so.

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Pulling the trigger on that big purchase in December ought to be the end of a calculated process. There have been many regretful Januarys because of hasty decisions made during December. Much of the large capital purchases are accompanied by installs and training, so signing paperwork is just the beginning. The numbers can be signed, sealed, and delivered, but you don't see your ROI until implementing that decision in your practice.

Making large purchases at the beginning of the year, rather than the end, also has attractive advantages. Practices (and patients) can benefit from a more leisurely timeline for both equipment installation and team training. To qualify for section 179 expensing, equipment must be in place and useable by the year's end. Purchasing and installing equipment long before the year draws to a close means that your practice will have ample time to meet this requirement, rather than putting in some long hours during the winter holidays.

The smart dentist will have an open and developed relationship with his or her sales rep. I know, that is a big stretch for me to say, right? Sales reps have been through multiple installs and know all of the pitfalls. Many dentists will only make a big equipment purchase one time, so it makes sense to lean on experience. Not only that, but it behooves the sales rep to do it right. Foul up a large purchase and you might just foul up future purchases. Sure, we are the very people encouraging you to take advantage of section 179 in December-however, a good rep will have been talking to you about this commitment for weeks.

So here we are in 2015. Section 179 is back to $25,000, and we are back to hoping for a congressional improvement on that amount by year's end. Don't worry, it will likely happen. But when the push is on, be sure you have done your homework already.

Editor's note:Consult your tax advisor or accountant before making a tax decision.

Gene Redden is originally from Mississippi and currently lives in Tennessee. He is currently a CAD/CAM specialist with Henry Schein and has been a road warrior across the Southeast for decades.