Have you thought about upgrading your equipment to the newest industry standards but were afraid of the cost? Or perhaps you want to improve your office to make it more comfortable for your patients? Do you need to upgrade your reception area to make it more efficient for your administrative staff or look nicer for your patients?
Have you thought about upgrading your equipment to the newest industry standards but were afraid of the cost? Or perhaps you want to improve your office to make it more comfortable for your patients? Do you need to upgrade your reception area to make it more efficient for your administrative staff or look nicer for your patients?
If you have been thinking about any of these improvements for your practice, consider that if you do it in 2008, the Government will help pay for them. That's right, Uncle Sam is ready to pay for a significant part of your cost of improvements, but only if you make your purchases and do your improvements in 2008. How? The good old American way - through major tax deductions.
In February 2008, President Bush signed into law the Economic Stimulus Law of 2008. Most people think of this as the bill that gave millions of Americans a tax rebate check of $600-$1,200. You may not have been eligible for this benefit because your income was too high, but other parts of this legislation could be worth far more to a dentist than a small rebate check.
There are two parts of this legislation that could be particularly lucrative to you in 2008. First, there is the change to the Section 179 rules. Most of you know that if you buy new equipment then you can elect to deduct the full cost of this equipment up to certain limits. What you may not know is that these limits were increased substantially for equipment purchased and placed into service in 2008.
There are two limits that increased as part of the 2008 Tax Act. The first is the total amount of equipment that can be deducted in a single year. The rule is $125,000 for years before and after 2008. But, for 2008 only, the limit has been increased to $250,000.
And the deduction is not limited to equipment. It also applies to computer software and to certain leasehold improvements.
The second limit that was increased is the maximum amount of equipment you can buy and still get the Section 179 deduction at all. Before and after 2008, you only get the deduction if you buy less than $400,000 of equipment during the year. For 2008, this has been doubled to $800,000. What does this mean to you? If you are setting up a new office or multiple offices, you may have been disallowed ANY Section 179 deduction if you purchased more than $400,000 of equipment. With this limit doubled, most dentists will be able to deduct all of the equipment they buy in 2008 up to the increased $250,000 limit.
In addition to the changes to the Section 179 deduction, there is more good news for those of you expanding or renovating your offices. As you may know, Section 179 only applies to tangible personal property (i.e., equipment and furnishings). So what about all of those improvements to the office itself? Any benefit there? Absolutely!!!
The 2008 Tax Act allows a bonus deduction for depreciation on certain property equal to 50% of the cost. And you still get to depreciate the other 50% of the cost of the property over the normal depreciation period. Let me give you an example.
Suppose you decide to renovate your office in 2008. You buy new equipment for $150,000, new furniture for $30,000 and make leasehold improvements to the office of $40,000. If you get this all done in 2008, your current tax deduction will be in excess of $200,000. If you wait until 2009, you will only get a deduction in 2009 of about $138,000. The different of $62,000 would have to be depreciated over future years.
One more benefit from this new law should not be overlooked, and that's the additional depreciation you can take on business vehicles placed in service in 2008. Because of the "luxury auto" limitations, depreciation deductions for automobiles are severely limited. But in 2008, the limits are increased by $3,600. Nothing like the increases in Section 179 or bonus depreciation, but still a nice additional benefit for 2008.
Now for the really important part of this story. What should you do? Should you spend the money? ONLY IF IT MAKES SENSE FOR YOUR BUSINESS!!! I never recommend spending money just for a tax benefit. After all, the maximum tax rate is on 35% and even with a state rate of as much as 11%, you still lose money if all you are getting is a tax deduction.
On the other hand, if you are planning to make improvements to your office and/or equipment in the next year or two, it might make sense to do it in 2008 so the Government can underwrite a substantial portion (35-50%) of the cost.
I strongly recommend you meet with your tax advisor before undertaking any tax planning. I especially recommend to our dentist clients that they work with their tax advisor to formulate a COMPREHENSIVE, LONG-TERM TAX STRATEGY.
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