Charles Blair, DDS
John McGill, MBA, CPA, JD
During each of the past two years, I have purchased $10,000 of ADA-qualifying equipment, which I thought would give me a $5,000 reduction in my income tax. However, my accountant allowed only a portion of this disabled-access credit to be used each year. He told me that I could use the rest of the credit in future years. Not knowing exactly how this ADA credit worked, I took him at his word.
At a recent AGD Mastership program, a number of dentists were discussing this ADA tax credit. It seemed that some dentists were taking the full $5,000 tax credit each year and some were not. Nobody had an explanation that would satisfy those of us who were not getting the full $5,000 credit. Do you have any information concerning this?
IRS Section 44 provides for a tax credit for expenditures to provide access to disabled individuals. The credit amount is equal to 50 percent of the "eligible access expenditures" that exceed $250, and are not more than $10,250. Accordingly, the maximum credit allowed is $5,000.
Section 44 defines "eligible expenditures" as "amount paid or incurred by an eligible small business for the purpose of enabling such ... business to comply with applicable requirements under the Americans With Disabilities Act of 1990 ..." The statute excludes new construction, and requires that the expenditure be reasonable and necessary to accomplish compliance with the ADA.
In a recent Private Letter Ruling, PLR 9716009, the IRS concluded that the purchase of digital-radiography equipment to replace traditional X-ray equipment does not qualify for Section 44 credit, despite the fact that it would provide more easily viewable images for visually impaired patients. The IRS found that the principal benefit of the new equipment was to the dentist, and that the patients could view their traditional X-rays through a magnifying glass. The IRS has not yet issued regulations in this area. Expenditures intended to qualify for the credit should be considered in light of this recent Letter Ruling.
The credit is reported on IRS Form 3800 (General Business Credit). The General Business Credit is based upon the taxpayer`s tentative alternative minimum tax. The credit is only allowed in a given year to the extent that it reduces the regular tax to an amount equal to the tentative alternative minimum tax. This is, most likely, the reason you were unable to take full advantage of the credit. Fortunately, any excess credit can be carried back three years and carried forward 15 years.
In December, I purchased $25,000 of new office furnishings. While I would like to deduct as much as possible on my 1998 tax return, my accountant says that my deductions would be limited since I bought these items so late in the year. Is he correct?
The fact that you purchased these items in December does not prohibit you from taking full advantage of the Section 179 expensing election for new acquisitions ($18,500 in 1998). Assuming a proper election is made when Form 4562 is filed with your 1998 tax return, you would be able to write off the first $18,500 of the new furnishings purchased.
The write-off for the remaining $6,500 is somewhat limited as a result of your end-of-year purchase. Had you purchased these items before October 1, you would have been able to write off $929 of the remaining $6,500 on your 1998 return.
Due to the late purchase, you are entitled to deduct one-quarter of the amount, or $232. The balance of this cost can be written off over the following six years.
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 ($149 a year) and consulting information are available from Blair/McGill and Company, 2810 Coliseum Centre Drive, Suite 360, Charlotte, NC 28217 or call (704) 424-9780.