Should a Dentist Take Section 179 – First Year Expensing Election in 2012?

I hate to sound like an equipment sales rep, for that I apologize, however, this question keeps coming up about a couple of tax breaks that are set to expire at the end of 2012.

Through the end of 2012, a business can elect to expense this year up to $139,000 of most furniture and equipment that is purchased AND placed in service in 2012. If your purchases exceed that, you can also take an additional bonus depreciation of 50% of the cost, again, if purchased AND placed in service in 2012. 

Now, JUST because it is available does NOT mean it makes sense to take these deductions in 2012. You really need to consider your 2012 income tax brackets compared to the brackets you expect to be in for 2013 (and beyond) in addition to the additional taxes you might be subject to (like the new 3.8% tax in future years.)

For example, taking a $100,000 deduction (or expense) this year in a blended 15%25% income tax bracket could save you $20,000 in federal income taxes. However, if you expect to be in the 35%+ income tax bracket in 2013 and beyond, that $100,000 deduction could be worth $35,000+. You have to decide if it is worth waiting for an additional $15,000+ in tax savings (I think it may be worth the wait.)

Keep in mind the new 3.8% tax will hit next year and joint filers with adjusted gross income over $250,000 might be subject to this tax (single filers will be hit at a lower AGI) . So the other benefit of spreading out the deduction over future years or waiting to purchase items in 2013 will be the potential for you to remain near or below the $250,000 AGI threshold to avoid or minimize this new tax.

Higher income earners will get hit hard starting in 2013, so anything you can do to try to keep your income down in future years will make sense….even if that means NOT taking advantage of these expiring tax breaks right now.

Happy tax planning to all!  

Tim Lott, CPA, CVA 

For more information, please contact