If surgery is your game, this may be the year to ante up some cash and go shopping. High-tech advancements for the veterinary
profession have merged opportunistically with favorable tax law changes. The 2003 federal tax act ("Jobs and Growth Tax Relief
Reconciliation Act of 2003") provides significant business incentives for equipment purchases, including those by capital-intensive
Any of the medical professions mandate continual reassessment of available equipment, competent personnel to use it, maintenance
contracts and continuing education to optimize the investment's efficient use. Veterinary staff can easily recite wish lists
for more efficient and better patient care through added equipment like new fluid pumps and pulse-oximeter units.
A break from the tax man
The most recent tax act provides for greatly accelerated expense deductions in the year of equipment purchase, through two
significant rule changes. The first rule with which practice owners should be familiar is that of Section 179. Section 179
of the Internal Revenue Service Code provides an option for immediate deduction up to 100 percent of the amount spent on equipment
purchases, even though the useful life expectancy of the equipment may be over several, if not many, tax years.
When investing in equipment, it is also important to dedicate time and money for training veterinarians and staff on the new
tools to ensure a return on your investment.
Under prior law, the maximum Code Section 179 deduction was $24,000 in the years 2001 and 2002. For 2003, the new tax law
changes the allowable amount to a full $100,000 for qualifying property placed in service beginning in 2003, 2004 and 2005.
For larger practices, the expensing allowance for major equipment purchases was previously phased out starting at $200,000
of equipment purchased in a single year. The phase-out has now been stepped up to begin at $400,000 of total qualified purchases.
At $500,000 of purchases, Section 179 election is totally lost, but in such a practice the next rule is still available.
The second incentive to replace or purchase equipment comes in the form of bonus depreciation. After Sept. 11, 2001, a 30
percent bonus depreciation provision was enacted. Now, 50 percent bonus depreciation can be taken for new qualified property
acquired after May 5, 2003, and before Jan. 1, 2005. For example, if a practice did not elect Section 179 on a $50,000 ultrasound,
it could still enjoy a $25,000 bonus depreciation deduction, plus regular accelerated depreciation on the remaining $25,000
The combination of these two rule changes allows significant potential for immediate deduction of equipment acquisitions so
that the maximum tax benefit can be accelerated to earlier years. Please note that although many rules and qualifications
exist as to how these two rules work and interact, it is important for business owners to be aware that the next three-year
span does provide a significant, and possibly once in a lifetime opportunity, to replace necessary but aged equipment with
the very latest and most productive technology available. Combined with the lowest interest rates in 40 years, savvy practice
owners will take a very close look at the current state of hospital equipment, as well as their needs for the midterm planning
range of three to five years.
Tax incentives make it more appealing to buy equipment versus leasing. Low interest rates also make it more attractive to
apply for a loan.
Prudent owners will plan tax strategy with their accountants, because of the complexity of the rules and the fact that state
laws may be more stringent and restrictive than federal laws regarding bonus depreciation.
The primary place we see these deduction opportunities playing out in veterinary practice is in diagnostic modalities supporting
the surgery suite. Computerized radiography, ultrasonography, CAT scan equipment and advanced imaging technologies are within
the range of reality for many practices now. Bench chemistry and blood analysis equipment are also good revenue generators
through pre- and post-surgical procedure monitoring.
Anesthesia equipment upgrades, such as vaporizers, oxygen delivery systems, and anesthetic gas evacuation equipment are other
excellent choices for purchase or trade-in.
The progressive practice's shopping list will also include anesthetic monitoring equipment, advanced lighting for the surgery
room, heated V-top surgery table units, intensive care recovery cages and similar equipment.
Keep in mind that all costs of equipment acquisition, including the labor for installation, are capitalized as part of the
equipment's cost. These installation and acquisition costs are also advantageously captured as immediate deductions through
Section 179 election and bonus depreciation.
Other costs of equipment acquisition should be computed in the calculation of your spending plan. Ultrasound machines are
a great investment, and spin off much additional revenue through diagnostics and advanced procedures such as US-guided biopsies
and associated lab work, as well as conclusion on surgical intervention potential. But, be forewarned; a profitable ultrasonography
department also requires significant investment of time to develop the expertise to use the equipment. Dedication to continuing
education and training out of the office, as well as in the practice, will be part of the total cost of acquisition and insuring
the equipment does not sit unused in the corner.