There’s typically a lot of fun stuff to do during the holidays, but tax planning isn’t one of them. Let’s face it…preparing for your taxes is really boring stuff, and it’s too easily pushed aside until the filing date is staring you in the face.
But as TV commercials say, if you act now you can purchase and implement certain software and hardware — including practiceQ™ — that not only help improve your practice’s efficiency but gain you special tax benefits through a deduction covered in IRS Section 179.
While we certainly don’t promote ourselves as tax-preparation experts, here’s some information on this valuable tax program, as well as some quick reminders of things you pay for every year that you may overlook at tax time.
A tax-deductions short list
First, here are a few things you may be forgetting to claim, including:
- Union or other professional dues
- Continuing education (in some cases)
- Travel and housing if non-reimbursed for nurses and others working on a per diem or other traveling contractor basis
But our two MVPs that can often be overlooked are Section 179, and qualified business income (QBI).
For owners of a small business, the Section 179 deduction is one of the most essential tax codes you need to be familiar with. To gain the maximum deduction for 2022, Section 179 lets you deduct all or part of the cost of qualifying equipment and software purchased or financed and put into use by no later than Dec. 31, 2022.
Designed to enable you to deduct a variety of other expenses, we specifically draw your attention to the investment in intakeQ’s practiceQ practice-management and digital forms solutions.
The details — The Section 179 deduction and bonus depreciation can be used for new equipment, used equipment and qualifying software. Here’s a quick recap of details for 2022:
- Deduction limit: $1.08 million
- Spending cap on equipment purchases: $2.7 million
- Bonus depreciation: 100% (This goes down starting in 2023, so see below)
Share this link with your practice manager and tax-preparation guru; the 2017 Tax Cut and Job Act expanded the definition and value of qualified real property that may be eligible. Basically, you can elect to treat any Section 179 property as a expense for the tax year in which it was placed in service.
Along with software — including software-as-a-service (SaaS) — Section 179 can also cover leaseholder improvement property for the tax year it was placed in service, such as roofs, heating, ventilation, air-conditioning, fire protection and alarm and security systems. It can also include certain business-related vehicles, other equipment including computers, and office furniture and equipment. Taken together, it can really add up!
The qualifying equipment can be new or used (but new to you), and regardless of whether it was purchased outright, leased or financed. Just make sure qualified improvements or equipment is purchased, financed and put in use through Dec. 31, 2022. As noted, a bonus depreciation of 100% runs through tax year 2022; it decreases 20% each subsequent year until it sunsets in 2027 unless Congress acts to extend it.
How to claim — To take the Section 179 Deduction, complete Part 1 of IRS form 4562(a link to a PDF of this free form is available below, along with instructions), and attach it to your tax return, much like any other additional form such as a Schedule C. Not all types of equipment qualify, so contact your accountant or tax professional.Also visit Section179.org for more information.
Note: As of this writing, both of these forms show prior years and figures; regardless, they are the most current forms, as posted on the U.S. Dept. of the Treasury IRS website.
Qualified business income (QBI)
Many owners of sole proprietorships, partnerships, S corporations and some trusts and estates may be eligible for a QBI deduction — aka Section 199A — starting with tax year 2018. The deduction allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
For more information on what qualifies as a trade or business, see determining your qualified trades or businesses in IRS Publication 535 (PDF).
The clock is ticking!
At least as far as any Section 179 tax deduction is concerned, the maximum amount you may be qualified for will decrease starting Jan. 1, 2023 as the bonus depreciation falls 20% for TY 2023. And a reminder…any qualified software or equipment must be financed and in place before midnight (Eastern) on Jan. 1 to qualify for any TY2022 deductions.
Again, we’re not tax experts, so contact your accountant and tax professionals before making any purchases to determine if they qualify for a Section 179 deduction for 2022. But we wanted to share some of this timely information as food for thought as you consider any year-end investments in your practice, including practiceQ, before the clock strikes midnight this coming Jan. 1.