6 Common mistakes to avoid when using Section 179 deductions

In the first part of our Section 179 series, we delved into the advantages of the Section 179 tax deduction – detailing its benefits and providing examples for medical practices.

Now, in part two, we will outline six pitfalls medical professionals should try to avoid when navigating Section 179.

Pitfall #1: Not understanding parameters – Eligible property and annual limits

Practices may make mistakes by not fully understanding which types of property qualify for a Section 179 deduction. Section 179 is applicable only to assets used for business purposes. Failing to allocate assets properly can lead to improper deductions.

Eligible property for Section 179 may include:

• Equipment, X-Ray, computers, fax machines, telephones, and other business property
• Furniture and fixtures
• Off-the-shelf-software that is used for business operations
• Improvements to real-estate such as roofs, heating, ventilation, and air-conditioning

Section 179 limits are updated annually, so it is important for practice owners to be aware of these limits and to plan accordingly.

Pitfall #2: Not adequately documenting purchases

Proper documentation is essential! Practice owners should maintain detailed records of all purchases eligible for Section 179 including the date, description of the property, how the property is used in the business, the cost, proof of receipt/delivery, and verification that items have been placed into service in the tax year for which the deduction is being claimed. Proper documentation is especially helpful in the event of an audit.

Pitfall #3: Not considering carryovers

If a practice does not have enough taxable income to absorb the entire Section 179 deduction in year one, it is important to understand the carryover provision and how unused deductions can be carried forward to future years.

Pitfall #4: Overlooking state tax implications

While Section 179 is a federal tax provision, practices should also consider state tax implications. Some states may not conform to federal rules, and understanding the state tax impact is critical. Practices should keep documentation of how their state tax laws conform to or differ from Section 179 provisions.

Pitfall #5: Not fully optimizing strategic planning

It is important to strategically plan Section 179 deductions based on a practice’s financial situation. Sometimes, using traditional depreciation and spreading out deductions over several years may be more beneficial than taking a large deduction in a single year. By strategically planning Section 179 deductions, practices can optimize tax savings while avoiding wasted deductions. While unused deductions can be carried forward, planning aims to maximize immediate benefits.

Pitfall #6: Not Seeking Professional Advice

Tax laws can be complex. Practice owners may make mistakes by not seeking advice from qualified tax professionals. Tax professionals can provide guidance on maximizing Section 179 benefits while ensuring full compliance with tax regulations. Practices should stay informed about changes in tax laws and seek professional advice to optimize Section 179, as well as other tax deductions.

In conclusion, Section 179 can help enhance a practice’s overall financial health, but it is important that health care professionals try to avoid these common mistakes in order to maximize the benefits it can offer practices. By understanding the parameters, documenting purchases, considering carryovers, understanding state tax implications, planning strategically, and seeking professional advice, practices can take full advantage of the Section 179 tax deduction.

Natalie Westfall is Vice President and General Manager of Henry Schein Financial Services. For a complimentary consultation and to learn more about Section 179, please contact Henry Schein Financial Services online, call 1-877-776-7286, or email hsfs@henryschein.com.