Depreciation Tips for Small Healthcare Clinics

Growing your practice by investing in new high-technology medical equipment is one of the best strategies for the success of your business. Interest rates are still very low and business loan interest is still 100% tax deductible. The newest technology gives you an advantage over your competition, both in marketing and quality of care.

There’s no denying that investing in new medical equipment is an investment in your success. Taking a big tax deduction on equipment in the year of purchase can be a huge benefit to your practice. Unfortunately, it’s also very common for it to become a five-year financial burden that some practices never recover from. The cookie-cutter approach to accelerated depreciation can hamstring the growth of your practice.

How is this possible? Accountants love to talk about the time value of money, and it’s true that a deduction today is worth more than the same deduction next year. But what happens in three years when you are still paying off the equipment loans, your taxes have gone through the roof, and the loan principal payments are not tax deductible? Will you have had enough growth by then to sustain that kind of cash outflow? Does it make sense to save fifteen cents on the dollar today when you could be in the 35% tax bracket next year?

The answer is maybe. It is not a simple question, and careful consideration and planning is the key. Your personal cash flow needs, business loan payments, projected practice growth, and many other factors all play into determining the best strategy for your new equipment or practice purchase.

Avoid the landmines and make the most of your opportunities by consulting a healthcare-specific tax professional. There are too many variables and too much at risk to use the cookie-cutter approach.