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November 2, 2020

What is Section 179 and How Much Could It Save You?

Are you 179ing? Maybe you should. This government incentive could save practices or pharmacies thousands of dollars on software and other business equipment purchases. Section 179 allows businesses, including healthcare, to write off the entire purchase price of qualifying equipment/software (this includes Updox) for the current tax year.

Section 179 isn’t new but it is one of the few government incentives available to small businesses and included in many of the recent Stimulus Acts and Congressional Tax Bills.

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. That means that if you purchase software (again, including Updox), you can deduct the full purchase price from your gross income. It’s an incentive created by the U.S. government to encourage businesses to invest in themselves. Read more here.

Section 179 does have limits. The total amount that can be written off is capped at $1,040,000 for 2020 and the total amount of software or equipment purchased is limited to $2,590,000 in 2020. The deduction begins to phase out on a dollar-for-dollar basis after $2,590,000 is spent by a given business (so the entire deduction goes away once $3,630,000 in purchases is reached).

Most tangible goods used by American businesses, including “off-the-shelf” software and business-use vehicles (restrictions apply), qualify for the Section 179 Deduction.

HOW DOES THIS HELP A PRACTICE OR PHARMACY FINANCIALLY?

By deducting the full cost of medical equipment or software, including electronic medical records and/or practice management software, they lower the overall amount they must pay substantially. The deduction they take may exceed the total loan or lease payments they make for the year, making their deduction process a more financially beneficial move.

HOW DOES A PRACTICE OR PHARMACY DO THIS?

All a practice or pharmacy needs to do is buy or lease the equipment/software, and use the corresponding IRS form. Practices must be up, running and operational on the software by Dec. 31, 2020.

And here are instructions on how to use IRS Form 4562.

IS IT ONLY FOR EQUIPMENT?

An increasingly popular use of the IRS §179 Deduction is for software.

In general terms, “off-the-shelf” computer software that (a) is not custom designed, and (b) is available to the general public is qualified for the Section 179 Deduction in the year that you put the software into service. Further details below:

  • The software must be used in your business for income-producing activity.
  • The software must have a determinable useful life.
  • The software must be expected to last more than one year.
  • The software must be readily available for purchase by the general public.
  • The software must be subject to a non-exclusive license (e.g., it’s not just yours).
  • The software must not have been substantially modified.

WHAT SOFTWARE DOESN’T QUALIFY? 

  • Custom code – software that is written or highly customized for your company is not eligible.
  • Databases or similar are not considered deductible computer software unless they are in the public domain and incidental to the operation of otherwise qualifying software.
  • Websites are generally not eligible for Section 179. With the rise of online website builders, this may change, so be sure to check back or ask your accountant.

SHOW ME THE MONEY!

Ready to start a virtual care strategy for your practice as you prepare for success in a post-COVID environment? You can start with online electronic fax, telehealth, electronic forms or secure text messaging – all in a way that saves you even more money (and staff resources) this year.

Use this deduction calculator to see how much you might save. 

Act quickly as this program could end on Jan. 1, 2021, and you must be utilizing Updox by Dec. 31, 2020, to take advantage. Learn more here.

* Please note we are not providing tax advice, as we are not experts in that field, but we wanted you to know of this opportunity. Updox does not provide tax, legal or accounting advice. This page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any activity.

Topics: Blog, healthcare software