Six Ways for Physicians to Avoid Overpaying Tax on Equipment Purchases

Six Ways for Physicians to Avoid Overpaying Tax on Equipment Purchases

By Houston TX CPA Jim Trippon, on the web at www.CPAHoustonTX.com

Nowadays medical equipment, especially modern laboratory equipment, has become expensive and physicians are struggling to keep pace with the change in technology. The obsolescence in medical equipment means poorer facilities for patients. We see this regularly as an issue with our Physician clients in our CPA firm in Houston, Texas. Recognizing this issue the US government has taken several steps in alleviating the problems. Here is a summary of what you need to know:

  • Provision under Section 179
    • One of the ways to save tax is to treat expenses on medical equipment as an expense rather than a capital expenditure. This means that the entire amount spent on medical equipment can be written off in the same year in which it has been purchased. The advantages are obvious. However there are several limitations and conditions wherein, medical practitioners can opt for the normal MACRS depreciation.

  • MACRS depreciation
    • Under this provision, Physicians can depreciate their medical equipment over several years. In this case the equipment can be depreciated by 50% in the initial year i.e. the year of purchase and the rest equally spread over. One can also opt for the regular depreciation which means an equal amount every year.

  • Deferred payment in case of loss when selling medical equipment
    • Since medical equipment becomes obsolescent quickly, Physicians are likely to sell them before the item has fully depreciated. For tax purposes, the sales proceeds minus the depreciated amount is considered to be the profit. If this amount turns out to be negative or the equipment is sold at a loss, Physicians can claim the same and get tax benefit.

  • Deferred payment in case of profit when selling medical equipment
    • Sometimes, though rarely, sale of Medical equipment results in a profit. In such a case the Physician has to pay capital gains tax on this amount. This payment can be deferred and adjusted against purchase/ sale of medical equipment in future. It has to be understood that the tax in this case is only deferred and not waived. The proviso is that a loss while selling medical equipment can be adjusted against the profits in the previous case.

  • Lease of medical equipment
    • Since cost of medical equipment is very high and they become obsolete quickly, physicians should review their purchase decisions and consider leasing option. This has three major benefits.

      1. One need not spend a large amount of money and invest heavily on purchasing equipment.
      2. The lease amount can be written off completely as expenses.
      3. Lease state of the art medical equipment every year.

      The decision whether to lease or buy medical equipment should be made judiciously. Sometimes tax benefits from claiming relief under section 179 might be quite attractive as against leasing. Leasing expenses are steep and sometimes even as high as 90% of the equipment cost itself. Buying medical equipment means the capital of a medical practice increases and this can be leveraged while taking loans from banks and financial institutions. We have more information on this topic, and additional articles, at our website, www.CPAHoustonTX.com.

  • Lease –purchase of medical equipment
    • This is another attractive option and is akin to having the cake and eating it too. The medical equipment can initially be leased and over a period of time it becomes the property of the lessee. The tax provisions in such cases have to be interpreted carefully to avoid clash with authorities. The advantages in lease-purchase of medical equipment far overweigh the complication in estimating tax liability.

The above six methods should be used by medical practitioners depending on their specific situation. Often, Physicians tend to ignore or are unaware of the tax implications and pay excess tax in the process. By choosing the right alternative, it is possible to save property tax on purchase of medical equipment. One should always take the advice of a qualified tax practitioner make maximum use of the various provisions available.

About the Author: Jim Trippon CPA is the founder of J.M. Trippon & Company, PC a CPA FIRM in Houston, Texas that works with healthcare practitioners and medical groups across the country. For more information, or for help with accounting or tax reporting for your medical practice, please contact Houston TX CPA Jim Trippon at 713-661-1040 or visit our website at www.CPAHoustonTX.com.

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