Section 179 at a Glance for 2023
2023 Deduction Limit = $1,160,000
This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for the tax year 2023, the equipment must be financed or purchased and put into service between January 1, 2023, and the end of the day on December 31, 2023.
2023 Spending Cap on equipment purchases = $4,050,000
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive” (because larger businesses that spend more than $3,780,000 on equipment won’t get the deduction.)
According to the website Section179.org—a free resource dedicated to providing information on the Section 179 Tax Deduction—many people who take advantage of this special tax deduction find that…
“…the tax savings will actually exceed the total of the first year’s payments on the equipment, which makes buying equipment profitable for the current tax year.”
That makes it a lot easier to invest in equipment for your new or growing veterinary practice.
What is Section 179?
Section 179 is part of the IRS tax code. It’s a perfectly legal tax “perk” for small to medium-sized businesses, which allows a generous tax deduction for purchases of many types of equipment and software.
The original intent of this tax benefit was to help small businesses purchase equipment and invest in themselves.
This deduction can be for the full purchase price of qualifying equipment purchased within that tax year. Yes, that includes financed/leased equipment, too, in addition to equipment purchased outright.
Larger businesses can also benefit from this deduction. However, the dollar-for-dollar deduction decreases after a certain spending cap (and the benefit disappears altogether after a certain amount), since the benefit is designed primarily for small to medium-sized businesses.
How Can Section 179 Help My Veterinary Business?
In the past, businesses usually benefited from tax write-offs for equipment depreciation. But this was a much slower process, writing off just a little bit of depreciation each year.
Section 179 speeds up the process and allows for a much larger deduction—the entire purchase price of qualifying equipment you invested in that year—during a single tax year, rather than slowly over several years.
This can make it more financially feasible for you to purchase the equipment you need right now.
Since most small businesses’ entire year’s equipment purchases fall well within the deduction limit, you may be able to write off the entire cost of all the equipment you invested in for the year.
This would be especially helpful for a startup or brand-new veterinary practice when you will need to purchase or finance a lot of equipment all at once.
But well-established clinics can certainly benefit, too.
What Else Should I Know?
The website Section179.org is a great resource to answer your specific questions about how this tax rule applies to your veterinary business.
But here are a few more general principles to know about Section 179…
In addition to being purchased during the tax year in question, the equipment must also be put into use during the year it is written off.
So you can’t, say, make a big purchase and then just put it into storage or start using it next year—the write-off is only for the equipment you are currently using.
Bonus Depreciation is offered for some years.
This Bonus Depreciation allows you to “double-up” in a sense—by combining a tax write-off for equipment depreciation on this year’s equipment purchases, in addition to the Section 179 write-off of that very same equipment.
Section 179 covers used equipment, as well as new—as long as the equipment is new to your business and purchased or financed by you within the current tax year.
This even includes Bonus Depreciation on used equipment—previously this wasn’t allowed, but the most recent tax laws do allow for it.
There are some restrictions on which equipment qualifies.
In particular, vehicles and software have their own stipulations.
For an up to date list of qualifying equipment and stipulations, check Section179.org.
The deadline in which to purchase your equipment and place it into service is December 31st of the year in which you’d like to take the deduction.
To gain the Section 179 benefit, you’ll need to fill out ‘Part One’ of IRS form 4562.
Where Can I Learn More?
As we’ve mentioned, Section179.org is a great resource. In addition to some of the most up to date information and lists of qualifying equipment, the website also includes a calculator so you can figure out how much your tax savings will be.
Also, as with all financial or tax information, it’s always best to consult a qualified professional for your specific situation.
But once you understand how this and other tax benefits may apply to you as the owner of a veterinary practice, the savings could make a big difference in your bottom line—which in turn could give you a leg up to help your practice grow and thrive.
Written by: Dr. Tammy Powell, DVM
