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Fiscally Fit in 2012

Issue: Fall 2012
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Dental practice owners have been provided with historically significant tax incentives through 2012, making this the right time to invest in your practice’s future. The government estimates that its cost of enhancing Section 179 is $50 billion alone. Are you poised to seize the opportunity?

Dental practice owners have unprecedented incentives to invest in their practices! The Section 179 benefit in 2011 was a record high $500,000. In 2012, the Section 179 benefit was reduced to $139,000, less but still significant. On January 1, 2013, the Section 179 will be reduced again by 83%, to $25,000 because of the 2010 Tax Relief Act. We all know this is an election year. There is NO GUARANTEE that politicians will agree (or even vote on) changing the Section 179 limits going forward.

Small business owners have many benefits to focus on. The 2010 Tax Relief Act is in favorable treatment of off-the-shelf computer software (i.e. Dentrix, DEXIS) as eligible for Section 179 expensing. In addition, there is a 50% Bonus Depreciation (applies to qualified property acquired before January 1, 2013). The qualifying property for the Bonus Depreciation allowance is only available for new property (the original use begins with the practice owner).

The list of tax incentives expiring in 2012 for both businesses and personal use is extensive. There are more benefits than space in this article (i.e. luxury auto depreciation cap, self-constructed property, credit for energy efficient appliances, above-the-line deduction for qualified tuition and related expenses, conversion credit for plug-in electric vehicles, expansion of adoption credit and adoption assistance programs, tax credit for research and experimentation expenses, etc…). Thus, it is recommended that dental practice owners discuss their individual circumstances with their own advisors.

Annual Internal Revenue Code Section 179 Example:

A. Equipment Price $125,000
B. Section 179 Deduction $125,000
C. Combined Federal/State Tax Bracket 38%
D. Total 2012 Tax Savings as a Result of Capital Equipment $ 47,500
(This amount would have been paid in taxes if not for equipment acquired (can be financed).)

This deduction may be available whether you are a sole proprietorship, a partnership, or a corporation (S corps are subject to different rules; again, please check with your advisors). If you plan to acquire equipment in the near future, purchasing it before year-end is prudent. Utilizing a finance agreement or capital lease to acquire technology or equipment will qualify for this benefit (where true leases or fair market value agreements will not). If you use a finance agreement to acquire your equipment and you have deferred payments, you may file your tax returns and achieve the benefits before you have made any payments.

Don’t wait too long to acquire technology or upgrade your office. Although it is true that you can have equipment placed in service until December 31, 2012 to take advantage of the incentives, waiting too far into the year may mean that your choices may be limited due to diminished year-end selections. Now is the right time to meet with an equipment or technology specialist and discuss acquiring the optimal production-enhancing technology and equipment that will help your practice stay “fiscally fit”.

If your business uses a fiscal tax year rather than the calendar tax year, you may have additional time to take advantage of the extended $139,000 Section 179 deduction privilege. For example, if your office’s next fiscal tax year will begin on November 1, 2012, the $139,000 deduction deal is available for your current tax year.

If your business uses the calendar year for tax purposes, you only have until December 31, 2012 to take advantage of the generous $139,000 allowance. Don’t wait to see if the rules for 2013 will change based on where the political football lands! Act now and take advantage of all the benefits available through this current legislative windfall!

Keith Drayer is Vice President, Henry Schein Financial Services. Henry Schein Financial Services provides equipment, technology, practice start-up, and acquisition financing services nationwide. Henry Schein Financial Services can be reached at 800-443-2756 or hsfs@henryschein.com. Please consult your tax advisor regarding your individual circumstances.