Tax changes mean now may be time to buy equipment

Personal Finance. By Katherine Vogt, AMNews staff. Dec. 12, 2005.

Amid all the buzz about sweeping tax reforms in coming years, some smaller changes that could affect physicians, their businesses and their finances are taking effect in a few weeks.

Changes in contribution limits, credits and deductions that could impact physicians' retirement savings, home and office improvements and equipment or vehicle purchases have been either recorded in 2005 or are about to be added to or subtracted from the books with the arrival of 2006.

One of the most pressing cases for physicians could be Section 179 deductions. They typically cover equipment and computer purchases up to $400,000 by small business owners. Physicians can use these deductions to buy everything from new medical equipment to software for electronic health records for their practices. In fact, given the tax rules, physicians might want to consider making their purchase in the next two years.

In 2005, the maximum total Section 179 deduction allowable was $105,000 in the first year. In 2006, the first-year deduction increases to $108,000. It is scheduled to revert to its historic level of $25,000 in 2007 unless Congress intervenes and extends it once again.

Another incentive for business owners will expire at the end of 2005, when rules affecting office remodeling projects change. For the last few years, certain structural improvements to owned office properties are allowed to be written off on a straight-line basis over a minimum of 15 years -- essentially averaging out the costs for every year. Beginning in 2006, such write-offs will be required to be written off over a minimum of 39 years. So if you're starting a qualified improvement next year, you won't be able to write off the cost as quickly, and get as large a tax advantage.