Take strategic approach when investing in surgical equipment
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 veterinary practices.
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.
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 balance.
Plan strategically 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.