Five Things Dental Clinicians Should Know About Tax Section 179 In 2021
With 2021 coming to a close, it's time again for dental practitioners to assess their tax strategy and take advantage of the opportunities available to them.
One of those opportunities is Section 179 of the IRS tax code, which allows small businesses to take deductions on new capital equipment – equipment that will be used to enhance their operations and increase revenue.
However, Section 179 has been expanded for 2021, providing small business owners with new (and higher) deduction limits. Here’s what you need to know to get the most from this incentive.1. Qualifying Section 179 Deductions
In 2021, section 179 allows a business to deduct, for the current tax year, the full purchase price of qualifying equipment and off-the-shelf software.
However, there are some limitations. The maximum Section 179 deduction for 2021 is $1,050,000, and a company's total equipment purchases may not exceed $2,620,000.
If exceeded, the reduction in the deduction applies on a dollar-for-dollar basis.
Most tangible equipment purchased or leased for business purposes this year will qualify for the deduction. You can also take the deduction on real estate upgrades, like adding a new roof to your building.
Section179.org provides a comprehensive list of qualifying purchases that you can review here.
2. Placing Equipment into Service
If you're still considering buying new equipment or technology this year, and you want to take a Section 179 deduction, keep in mind that you must make these purchases and “place them into service” (meaning the item must be operational and ready for use) by December 31st, 2021.
In 2021, businesses that wait until December to purchase equipment risk paying for the equipment but not receiving it in time to take the deduction due to supply chain issues. Avoid delays by looking for items that are in-stock, avoid making special orders, consider purchasing used equipment, and pay attention to shipping details.
3. Bonus Depreciation vs Section 179
Bonus depreciation isn’t offered every year, but in 2021, it’s being offered at 100%.
Bonus Depreciation is utilized after the Section 179 deduction limit is reached. In other words, if you buy enough equipment to exceed the deduction, you can take a “bonus” depreciation on the rest.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business has no taxable profit in the given tax year. Businesses with a net loss in a given tax year qualify to carry-forward the Bonus Depreciation to a future year.
The main difference between the two is that section 179 offers businesses a chance to pick and choose which assets and how much of those assets to cover or save. Using Bonus Depreciation, a business must deduct the full bonus percentage (100% in 2021) for all assets within the chosen asset class, which would leave no depreciation remaining for future years.
4. Purchasing Pre-owned Equipment
Section 179 deductions can be taken on eligible used and preowned equipment; as long as it’s new to you (and implemented by December 31st.)
If you are still hoping to make an equipment purchase in 2021, buying used equipment is a great option to save money and avoid potential supply chain delays that could affect your ability to place the equipment into service. Bonus Depreciation also applies to used equipment—previously this wasn’t allowed, but the most recent tax laws do allow for it.
5. COVID-19 and Section 179
Tangible business equipment acquired to modify businesses and/or comply with COVID-19 restrictions and standards are also eligible for the Section 179 tax deduction. This includes sanitizing stations, temperature check stations, dividers/plexiglass shielding, new printed signage, and other company equipment purchased to improve the workplace for employees and/or customers.
Section 179 offers small businesses a great opportunity to maximize purchasing power and improve their overall bottom line. To get a better sense of your prospective savings, use this Section 179 deduction calculator and be sure to consult with a tax professional to see if taking the Section 179 deduction is appropriate for your practice and tax situation.