Section 179 Vs. Bonus Deprecation: What’s the Difference?

by | Tuesday, November 22, 2016 | 0 comment(s)

New year resolutions are great and all—but before this year ends, maybe consider making an end of the year resolution as well. We even have a suggestion:

Update your ophthalmic practice with state-of-the-art equipment and save big on your taxes for the 2016 year.

How can you do this? Well, Section 179 of the IRS tax code actually allows businesses to deduct the full purchase price of qualifying equipment. Seriously. This incentive is meant to help establishments—like your practice—stay up to date with equipment that will boost business and keep you successful.

Sound a lot like Bonus Depreciation? While these two tax-saving methods have some similarities, they are in fact different—and in some instances, can be used together to save even more money.

Here’s what you need to know:

Let’s Start with Bonus Depreciation—What Is It?

Okay, Bonus Depreciation is a tax code for businesses regarding equipment and software—similar to Section 179.

While Depreciation allows businesses to spread the purchase price of equipment over its lifetime, Bonus Depreciation accelerates these savings, allowing businesses to make an additional 50% deduction of the property’s overall cost. The purchased equipment, however, must be new and put into use that same year. Once the property is purchased and put into use, Bonus Depreciation may be applied for that tax year.

What Is Section 179?

Section 179, on the other hand, allows businesses to deduct the total purchase price of qualifying software and equipment during the tax year—as long as it is under $500,000.

This means businesses don’t have to break up equipment costs into yearly deductibles. The goal of 179 is to help small to medium-sized businesses feel tax relief and invest in themselves.

Most leases and used equipment are even eligible for the Section 179 deduction; just make sure to check with your financial advisor to ensure your equipment qualifies. From EMR software to digital refraction systems, most ophthalmic equipment and software does qualify—as long as the equipment is purchased or financed and put to use between January 2016-December 2016.

What Is the Difference Between Section 179 and Bonus Depreciation?

Put very, very simply, Bonus Depreciation can only be used as a deduction for new equipment—whereas new and used equipment both qualify for Section 179. Additionally, Bonus Depreciation is largely for the benefit for big companies that will spend over the Section 179 limit.

So, What Is the Deduction Limit?

This may change from year to year, however, the 2016 price caps include:

Section 179 Deduction Limit: $500,000 per equipment purchase

Section 179 Spending Cap on All Equipment Purchases: $2,000,000

Bonus Depreciation: 50%

Does This Limit Include the Number of Equipment I Purchase and Lease Within a Year?

Your total yearly expenditure—regardless of the number equipment you purchase or lease—cannot exceed the spending cap with Section 179. This is where Bonus Depreciation may be of further help to you. For example, you may be able to use Section 179 to reduce the price of qualifying equipment, then take the additional Bonus Depreciation of 50% off the remaining cost.

There’s Still Time

Take a look at our digital refraction systems and their many benefits and consider making the switch before the end of the tax year.

There is a strong shift toward digital now in the ophthalmic industry. The Section 179 deduction is the perfect opportunity for you to update your office to the digital age standard.

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