The Section 179 Deduction allows a taxpayer to lower their income tax in the year an asset purchase (DR panel, CR, X-ray, Software, etc) was made by deducting the full cost of qualifying equipment purchases. Section 179 was created by the government to encourage businesses to purchase equipment and invest in themselves.
How to Deduct Cost of X-Ray Machine
To understand Section 179 you have to have a basic understanding of depreciation. Depreciation is the accounting method by which asset purchases (equipment purchased by a business/ individual that will be used for longer than 1 year and has a value greater than $500) is written off as an expense by the company. For example, a Chiropractic office can purchase office supplies and expense them immediately in the month they were purchased; this offsets income generated that month and reduces taxes that are owed from income generated. However, if a Chiropractic office purchases a digital x-ray system they are not allowed to write that entire amount off in the year it was purchased since they will be utilizing the value of that asset over several years. What depreciation does is it expenses a part of the asset over the useful life of the asset. If you purchased a digital x-ray solution for $45,000 and it was deemed to have a useful life of 5 years, you would only be allowed to write off $9,000 per year for the next 5 years. The decision about recovery period of an asset is established by the IRS*.
The way a business can benefit from Section 179 is that in certain years they allow a company to write off the entire amount of an asset in the year it was purchased. So in this case, if an urgent care center purchased x-ray equipment for $45,000, they would be able to write off the entire $45,000 this year, rather than $9,000 each year for the next 5 years. Effectively this reduces their net income and allows them to pay less in income tax for this year. Assuming a 35% tax rate this would effectively enable a business to save almost $16,000 in taxes for this year*.
Every Years Tax Deduction Changes
For this year, the 2018 Section 179 deduction limit is $500,000. So a business could purchase up to $500,000 in assets (collectively, not each individual asset) this year and write that entire amount off this year if the property qualifies for Section 179. However, congress has yet to renew Section 179 for 2014 which in the event it is not renewed will drop the deduction limit drastically.
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*The decision about recovery period of an asset is established by the IRS and you should consult your tax accountant for further clarification. The above example presents a potential tax scenario based on typical assumptions that may or may not apply to your specific business. This blog is not meant to infer tax advice. Please consult your tax adviser to determine the tax ramifications of acquiring equipment for your business.