Stimulus Act Tax Opportunities for Your Practice

This year’s Economic Stimulus Act does more than send individual taxpayers federal income tax rebates. The law also presents opportunities for reducing the taxes your medical practice will owe for 2008.

Higher Section 179 Expensing Limit
Section 179 of the tax code now may allow your practice to immediately deduct as an expense—rather than depreciate over a period of years—up to $250,000 of the cost of new or used medical equipment and other eligible business assets that you purchase and start using during the 2008 tax year. Before the law change, the expensing limit for 2008 was $128,000.

Note that an overall investment limit of $800,000— increased from $510,000—applies for 2008. Purchases exceeding $800,000 generally reduce the Section 179 deduction dollar-for-dollar so that the deduction is fully phased out when a taxpayer’s total investment in assets eligible for Section 179 expensing reaches $1,050,000. A taxable income limitation also applies.

50% Bonus Depreciation
The Stimulus Act also greatly increases the total regular first-year depreciation deduction allowed on new equipment purchased and placed in service during 2008. This “bonus” depreciation deduction is generally equal to 50% of the asset’s cost. In addition to equipment, bonus depreciation is available for furniture, leasehold improvements, computer software and other qualified property (but not for buildings).

Bonus depreciation is claimed on top of the regular first-year depreciation deduction and can be used in conjunction with Section 179 expensing. For example, if you invest $650,000 in medical equipment this year, you potentially could deduct 75% of your total cost in 2008:

Extra Depreciation for Vehicles
The Stimulus Act also increases by $8,000 the first-year maximum depreciation deduction allowed for a new automobile acquired and first used in 2008. The depreciation increase is $8,000 if the vehicle is used entirely for business. So, the maximum first-year depreciation allowance becomes $10,960—the 2008 $2,960 maximum plus $8,000. With business use between 50% and 100%, the maximum depreciation deduction is reduced proportionally. There’s no depreciation increase unless the vehicle is used more than 50% for business purposes.

The Stimulus Act’s incentives may make investing in fixed assets this year a smart financial decision for your practice. Please call us if you want to discuss your effective cost of acquiring equipment.

* 50% of $400,000, the remaining cost after accounting for the Section 179 deduction
** Assumes the equipment is five-year property and that the half-year convention applies

Please contact a member of our Health Care Team to discuss how the tax law affects your practice.

Health Care Commentaries is provided by Somerset’s Health Care Team for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact a member of our Health Care Team. This document is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Somerset CPAs, P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
http://healthcare.somersetcpas.com

6 Print this Article