November 16, 2011
As practices across the country plan for ICD-10 conversion, 5010 transaction sets, and EHR adoption and implementation, providers have to get more creative about how they budget their expenses. Fortunately, the government sympathizes with this and has set up many incentive programs for health information technology, most notably meaningful use and e-prescribe incentives.
However, there is another form of savings that can have a significant impact on your bottom line that doesn’t get a whole lot of limelight: strategic tax planning.
As I mentioned briefly in this month’s newsletter, the Section 179 tax deduction allows businesses that purchase equipment and/or software to deduct the full purchase price from its gross income. This means that any EHR software you have purchased this year—which includes EMR, patient portal, ePrescribe, and practice management, among others—qualifies for a tax deduction in the form of an accelerated depreciation expense, which can significantly affect your bottom line. Millions of small businesses have benefitted from this tax reduction, including medical practices.
In previous years, businesses were constrained to a $250,000 deduction limit with a cap of $800,000 on equipment purchases (including equipment purchased on a lease). But with the passing of the Economic Stimulus Act in 2008, which was passed to stimulate small businesses, the deduction limit was increased, and extended in 2010 and 2011. This year, the deduction limit is $500,000, with the limit on equipment purchases going up to $2 million. If your practice decides to take advantage of these tax deductions, you could amount to up to $225,000 in tax savings.
Take note, however, that the deduction opportunity depends on the specific tax situation of a doctor or practice—the deduction amount is calculated based on how large the profit margin is. Consult with your tax accountant or CPA to learn how Section 179 can benefit your practice.
Don’t hesitate to plow forward with digitizing your practice. With careful planning, your practice can qualify for multiple incentives and tax reductions to help you successfully launch into a more technological world. The year is fast coming to a close though, so make sure you take action now to ensure that you are ready for the December 31 tax deadline.
For more information on Section 179, see the following website: http://www.section179.org/