Pharmacy Tax Planning Using Major Equipment Purchases
Current tax laws allow independent pharmacies to write off 100% of the cost of new equipment placed in service during the tax year or to accelerate depreciation.
In this video, Scotty Sykes, CPA, CFP® provides a brief update on how IRS Section 179 and Section 168(k) can support tax planning through your pharmacy’s major equipment purchases. These laws have some crossover, but also differences, including how they may or may not benefit your state return.
Talk to the experienced pharmacy advisors at Sykes & Company, P.A. to plan for your next equipment purchase along with potential tax benefits.
Video: More About Bonus Depreciation
If you prefer to read this content, the video transcript is below.
Scotty Sykes – Those sections [of the law] allow you to have that aggressive depreciation or write-off of assets that you’re putting into use. But [Section] 179 will allow you to write off 100% of the asset in year one, as long as it’s put into use, and in Section 168(k), which they call bonus depreciation or accelerated depreciation, will also allow you to write off up to 100% of that asset in the year you put it into use.
Now there’s some limitations between both of them. Section 179, you can only write off up to $1,050,000. There’s a limitation there, which normally doesn’t come into play for pharmacies. And Section 168(k), there’s no limitations there. You have a little more flexibility. But with 168(k), bonus depreciation, you can actually create losses with that depreciation. And so that’s a very powerful planning pointer, when we’re talking about year-end planning, or if you have multiple pharmacies and you have some losses in one, or maybe some income in another, and you can create losses if you will, by using aggressive depreciation. [Section] 179, there are some limitations in that regard; you can’t necessarily create losses. Very common areas between both of them.
One thing also, in addition to, you need to be aware of the state, how your state handles the depreciation between Section 179 or Section 168(k). Some states will conform with federal. Some states will not. Some states will conform with federal for 179. Some will do it for 168(k), or bonus and vice versa. So what could be best for a federal, for example, may not be beneficial from a state perspective, or there could be state limitations. So you have to consider those state planning opportunities when doing that depreciation planning.