Charles Blair, DDS and
John McGill, MBA, CPA, JD
I have been contemplating some purchases of additional dental equipment in order to make my practice more accessible to the disabled. In particular, I have been looking at replacing my old dental chairs with some new ones that have a power-lift feature.
A colleague tells me that there are some significant tax benefits available for purchases of equipment made to accommodate the disabled in a dental practice. What are those, and how does this work?
The Americans With Disabili-ties Act was passed by Congress in 1990 to eliminate discrimination against disabled individuals. This law contained prohibitions against discrimination in employment, as well as requirements that businesses make modifications to their buildings and equipment to better serve disabled customers and patients.
To encourage compliance with the law, Congress added Section 44 to the Internal Revenue Code of 1986. This section provides substantial tax benefits for modifications made to office buildings and for purchases of equipment made to make a doctor`s practice more accessible to the disabled.
Under this code section, a limited amount of qualifying equipment purchased annually, is eligible for a 50-percent tax credit. This tax credit represents a dollar-for-dollar reduction in the doctor`s tax liability. Qualifying expenditures made by a doctor in excess of $250 annually, but not more than $10,250 annually, qualify for this tax credit, so that the maximum annual tax credit is $5,000. In addition, the remaining portion of the purchase price, after deducting the credit amount, may be eligible for the Section 179 expensing election (discussed below).
The combination of these tax benefits can reduce the out-of-pocket cost of equipment by over 45 percent for doctors in the highest income-tax brackets. For additional free information regarding this highly-lucrative tax credit and other items that may qualify, send a self-addressed, stamped ($.52) business envelope to Blair/McGill & Company, 4601 CharlottePark Drive, Suite 230, Charlotte, NC 28217, and request "How to Cut Your Equipment Cost By Over 45%."
I am planning the purchase of two dental chairs and some other, smaller, equipment items before year-end. I expect that the total cost of my purchases will run approximately $35,000. Recently, I heard a seminar speaker indicate that I could write all of this off immediately, but my accountant says otherwise. Who is correct?
Section 179 of the Internal Revenue Code of 1986 allows the doctor to immediately expense (write off) the first $17,500 of equipment purchased annually for federal income-tax purposes. Amounts purchased in excess of the expensing-election amount must be written off over a five- to seven-year period.
You may be able to structure the immediate expensing of $35,000 worth of equipment by properly timing year-end equipment purchases. Under the law, it is the date that the equipment is placed in service, and not when it is paid for, that determines when, and to what extent, the expensing election is available. For example, if you were to purchase $17,500 worth of the equipment and have it installed on or before Dec. 31, 1995, you would be able to immediately expense the entire amount in 1995, assuming no other equipment purchases were made during the course of the year. In addition, if the balance of the equipment purchases was installed and placed in service on or after Jan. 1, 1996, you would be able to utilize another $17,500 equipment-expensing election for calendar year 1996. Through proper timing of equipment purchases and their related installation, you could immediately expense the entire $35,000 purchase price over two tax years.
My accountant requires that I pay all business-car expenses personally, and deduct these on Schedule A of my federal income-tax return (Form 2106), but so far I`ve been unable to get any deductions, What do you think of this?
We recommend that incorporated doctors purchase and own all business automobiles through their professional corporation. In addition, we recommend that the corporation pay for the purchase costs and all operating expenses relating to the car, and deduct these expenses on the corporation`s federal/state tax returns, to the extent supported by the business usage of the car.
In most cases, incorporated doctors will be unable to take any deduction for business-car expenses through Form 2106 and attempting to deduct these on Schedule A. Under current tax law, miscellaneous, itemized deductions are allowable only to the extent that, in the aggregate, they exceed 2 percent of adjusted gross income. If the doctor`s adjusted gross income were $200,000, for example, the first $4,000 of expenses would not be deductible.
Dr. Blair is a nationally-known consultant and lecturer. McGill is a tax attorney and MBA. They are the editors of the Blair/McGill Advisory, a monthly newsletter helping dentists to maximize profitability, slash taxes and protect assets. The newsletter ($130 a year) and consulting information are available from Blair/McGill and Company, 4601 CharlottePark Drive, Suite 230, Charlotte, NC 28217, phone (704) 523-5882.