The modern dental practice is an efficient, patient-centered experience that seamlessly integrates technology into everyday processes and procedures. Does this sound like your dental office? Even if you answered yes, read on for suggestions on the best technology to invest in for a more productive, profitable dental practice – and how to make your equipment wish list a reality with bonus depreciation.
If your dental practice doesn’t yet have a CAD/CAM system, now is the time to consider it. CAD/CAM, or computer-aided design and computer aided manufacturing, is a digital process that improves the design and creation of crowns, dental implants, dentures, and more. Since these systems can cost upwards of $100,000, it’s an investment that requires significant thought and careful planning.
Going hand in hand with CAD/CAM systems, 3D printing will allow you to produce your own custom orthodontics, implants, and restorations in the office. There are printers specific to orthodontics, general dentistry, and dental surgery, each with their own specifications. The cost of 3D printers varies and will generally be less than $5,000.
Practice Management Software
There are many options for practice management software. The best software solutions will mirror your workflow and automate key processes. Costs vary from a few hundred dollars for the set-up of a cloud-based software program for a small office to $15,000 and above for locally hosted software programs and/or larger offices.
Keep In Mind: Certain types of software may not be eligible for depreciation. Contact our office for details.
Purchasing one 3D printer should be fairly easy for most practices. After all, most corporate credit cards or lines of credit have a limit higher than $5,000. What if you’re looking at purchasing more than one 3D printer, investing in a custom software package, or buying a CAD/CAM system? Assuming you don’t have a large cash reserve or high credit line, what are your options for adding this technology to your dental practice?
The solution is bonus depreciation. 2017 is the last year for 50 percent bonus depreciation; the value decreases in 2018. As of now, bonus depreciation is set to expire in 2019.
What Is Bonus Depreciation?
When you make capital upgrades to equipment or property, you can recover the cost of those upgrades through an annual tax deduction called depreciation. Most tangible property can be included, such as office furniture, computers, vehicles, and – you guessed it – CAD/CAM systems, 3D printers, and computer software.
What’s Not Included
Although you can include many capital improvements in bonus depreciation, you cannot include the following:
- Property with a useful life of less than one year
- Property that is disposed of the same year you purchased it
- Personal property
How It Works
Typically, the cost of a capital upgrade is depreciated over the course of its useful life – generally, five years or more. But for equipment or property placed into service in 2016 and 2017, bonus depreciation allows for an immediate 50 percent deduction the first year. In 2018 and 2019, the benefit decreases to 40 percent, and – as of now – bonus depreciation will expire after 2019.
Depreciation allows you to recover the cost of normal wear and tear over the life of, say, your office’s dental chairs. An oversimplified example is if you purchased three new dental chairs in 2016 for $3,000 each. Instead of spreading that cost over seven years, if you bought the new chairs in 2016, you could deduct 50 percent of the basis – the amount you paid for the chairs – the year you placed the chairs into service, which was 2016. If you bought the chairs in 2016 but didn’t install them until 2017, then the useful life begins in 2017, the year you placed the chairs into service.
The benefit is that you get more money back quicker. See our example below.
To calculate depreciation, you’ll need the total amount you paid, the year the equipment was placed into service, and the equipment’s salvage value – how much it’ll be worth at the end of its useful life. Subtract the salvage value from the total amount paid. This is the amount you can depreciate over the equipment’s useful life.
You purchase a new CAD/CAM system in 2016 for $100,000 and it has a useful life of seven years. You determine its salvage value to be $20,000. The difference is $80,000. You can deduct $80,000 in depreciation over seven years.
Purchase Price: $100,000
Useful Life: 7 years
Salvage Value: $20,000
100,000 – 20,000 = 80,000
80,000 / 7 years = $11,428 yearly depreciation deduction
Each year for seven years, you could deduct more than $11,000. But if you use bonus depreciation, you could deduct $40,000 in Year 1 and about $6,600 for each of the remaining six years.
Depreciation terms vary based on the equipment. Note that while you can depreciate the cost of improvements to land, you cannot depreciate land itself. Calculating depreciation is more complex than the simplistic example we provided above. You should consult with a tax professional to review your specific situation.
If you’ve been thinking about making technology or other upgrades to your dental office, 2017 is the last year to take advantage of 50 percent bonus depreciation. Consider your goals for your practice and how you want to improve the patient experience. Then, contact us to go over your options. We can assess the tax implications of any new office upgrade and help you get the most out of your investment.