How to Take Advantage of the Section 179 Tax Deduction in 2023
Owning and running a profitable dental business in the US can be challenging. There are many factors to consider, such as employee salaries, running expenses, utilities, and rental payments. More importantly, a significant portion of a dentist’s income goes into paying relevant local or federal taxes.
So, one has to be a seasoned business owner to generate a profitable income from a dental practice. But is there any strategy available to help dentists enjoy a maximum tax deduction?
Yes, there is! Have you heard about Section 179 tax deduction1 of the Internal Revenue Service (IRS)? It’s your key to optimize your investments and maximize your practice’s income.
What is the Section 179 Tax Deduction?
The Section 179 tax deduction of the IRS is designed to aid small- and medium-sized businesses. This Federal rule applies to tangible property, such as equipment or machinery, purchased or leased for use in a business or trade. As we can see, this Section applies to your dental businesses as well!
How Does the Section 179 Tax Deduction Work?
Any dental business filing a US Business Income Tax Return for 2023 can enjoy the said tax deduction. The equipment or machinery to be considered under this tax deduction scheme must be purchased or leased in 2023 and should be placed in service or installed no later than December 31, 2023.
I Recently Bought New Equipment for My Dental Practice. What are Things to Consider?
Here are a few things that you should consider to benefit from this tax deduction.
- Plan in Advance - After purchasing the machine or equipment, coordinate with the seller to ensure that the machine is installed before the end of the year. Lead times get tighter as the end of the year approaches.
- Staff Training - If the equipment requires training your staff before using, such as an autoclave or a 3D printer, ensure the training takes place in time so the machine can become functional before the year-end deadline.
Bear in mind that if you have paid for the machine or equipment in advance and fail to get it installed by December 31, 2023, you will not be eligible for the Section 179 Tax Deduction for 2023.
What Kind of Equipment Qualifies for this Deduction?
Virtually all the equipment you will lease or purchase for your dental office should qualify for this tax deduction, provided it is used more than 50% of the time by the business in a work year.
According to the Business News Daily,2 some examples of qualifying purchases include:
- Vehicles purchased for the dental office
- Improvements to existing facilities of the office, such as HVAC, security, fire alarms, and roofing
- Computers
- “Off-the-shelf” software for your dental business
- Equipment or machines such as Digital X-Ray, CBCT, Intraoral Scanners, Curing Lights, 3D Printers, Ultrasonic Scalers, Air Polishers, and accessories
- Office furniture, including patient chairs, cabinets, and tables
- Electrical appliances and small equipment for the waiting area, such as TV or music system
Things to Remember
- Retaining your Purchase Documents - during an IRS audit, your freight and lading bills from dental manufacturers will be reviewed. So, make sure to retain them during the financial year in case of an audit.
- Section 179 Tax Deduction Limits - for 2023, the maximum tax deduction available is up to $1,160,000. Furthermore, this tax deduction is valid up to an annual maximum spending of $2,890,000.
Whom to Contact?
To know more about Section 179 tax deduction, contact your CPA or tax professional. They will help you determine whether your practice is eligible for this tax deduction and whether it is the right choice. They may also help you benefit from other tax provisions that will help you maximize your earnings.
References
1. "Depreciation expense helps business owners keep more money." IRS.gov
2. "Section 179 Deduction: Rules and Limits." Business News Daily
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