Ever-changing laws make these experts more valuable than ever for medical practices and small businesses.
During the last few years, we have seen a multitude of changes in tax and healthcare law. Numerous provisions in these bills affect medical practices and small businesses. This article addresses three items that could reduce your tax bill.

Deducting Equipment Purchases

Two sections of the tax law contain guidelines for depreciation deductions. Bonus depreciation is defined in Internal Revenue Code (IRC) Section 168(k), and the election to expense certain depreciable assets is discussed in IRC Section 179.  Each has unique rules, such as:

Only new property is eligible for bonus depreciation, while new or used property qualifies for Section 179 expensing

Former personal-use equipment cannot be expensed under Section 179, but can be under Section 168(k)

Businesses are required to take bonus depreciation on eligible equipment unless an election is made to opt out

Businesses must make an election to take Section 179

Bonus depreciation can be taken regardless of whether the business has taxable income

The Section 179 deduction is limited to taxable income  

We have become accustomed to very liberal write-offs for equipment. In 2011, up to 100 percent of new qualified equipment purchases were eligible to be deducted using bonus depreciation. In addition, a deduction under Section 179 of up to $500,000 was available. Potentially, a small- to mid-sized business was able to deduct all of the equipment purchased in 2011.

Under  current tax law, the amount of equipment eligible to be deducted in the year of purchase falls in 2012 and drops dramatically in 2013 and beyond.  In 2012, the bonus depreciation amount drops from 100 percent (2011) to 50 percent (2012). Also, the Section 179 limit is reduced from $500,000 (2011) to $139,000 (2012). Furthermore, the $139,000 is subject to phase-out if the business places more than $560,000 of Section 179 property in service during 2012. Without further action by Congress, there will be no bonus depreciation in 2013, and the Section 179 limit will drop to $25,000. 

This would seem to encourage making qualifying purchases in 2012. The complicating factor is that tax rates are scheduled to increase in 2013, and the new Medicare surtax on high-income taxpayers is going to begin. Business owners should consult their tax advisors early in 2012 to determine the best strategy for their unique situation.

New Hire Tax Credit 

Employers who hired an unemployed worker from Feb. 3, 2010 to Dec. 31, 2010 may be eligible for a tax credit up to $1,000 on their 2011 tax return. Qualifications include:

“Unemployed” is defined as employed for 40 hours or less during the 60-day period ending on the date of hire

The employee has completed and signed Form W-11 or an affidavit that the employer has on file

The employee was not hired to replace another employee unless the former employee resigned voluntarily or was terminated for cause (the credit is encouraging new hires)

The employee must have been employed for 52 consecutive weeks after the hire date

The employee's wages during the second half of the 52-week period haven't dropped by more than 20 percent of what they were during the first 26 weeks

Credit for Small Employers Providing Employee Health Insurance

 To qualify for this credit, the business must:

Pay over 50 percent of the cost of employees' health  insurance

Have no more than 25 full-time equivalent (FTE) employees

Have average wages (excluding owners and their relatives) of less than $50,000 per FTE

The credit, which began in 2010 and can be difficult to compute, is claimed on the income tax return for the business.  If the business operates as an S corporation or a partnership, the credit flows through to each owner.  If there is no taxable income for the year, the credit can be carried forward or possibly backward (beginning in 2011).  

Based on our constantly changing tax rules, it is now more important than ever for small businesses to work with trusted tax advisors who stay informed.

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