It has been 17 years since the Americans with Disabilities Act (ADA) was signed into law.
The ADA is a federal law that prohibits discrimination against individuals with physical handicaps. It encompasses hiring practices as well as the design of buildings intended to serve the public.
If your practice is open to the public or operates an office, clinic, or other facility where employees work, it is legally obligated to make the premises accessible to disabled individuals.
With the Department of Justice cracking down on compliance, now might be a good time to explore how those incentives can help your practice profit.
DISABLED-ACCESS TAX CREDIT
One of the tax savings available to qualified small-business owners is the disabled-access tax credit. A qualified small business is an operation that had gross receipts of $1 million or less, or one that did not employ more than 30 full-time employees in the preceding tax year.
The disabled-access tax credit amount is 50 percent of the amount of eligible access expenditures that exceed $250 for a year, but do not exceed $10,250. The maximum credit — the amount by which the annual tax bill will be reduced — is $5,000.
What kinds of expenses qualify for this credit? The expenses must be incurred to meet requirements established as part of the ADA. You can claim the credit for the following costs:
• Removing architectural, communication, physical, or transportation barriers that prevent the business from being accessible to, or usable by, disabled individuals;
• Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals;
• Providing qualified readers, taped texts, and other effective methods of making visually delivered materials available to visually impaired individuals;
• Acquiring or modifying equipment or devices for disabled individuals; or
• Providing other similar services, modifications, materials, or equipment.
SECTION 179 DEDUCTIONS
The cost of being ADA-compliant frequently exceeds the amounts qualifying for the limited disabled-access tax credit. But help is available through an expense deduction — an immediate write-off — for the cost of newly acquired equipment and property. This property is called Section 179 property.
In general, lawmakers — and the Internal Revenue Service (IRS) — describe property qualifying for this immediate deduction as depreciable, tangible personal property purchased for use in the active conduct of a trade or business.
Property can be new or used, provided it is put into operation in your business. Air conditioning and heating units are specifically excluded as Section 179 property.
Almost every tax law change in recent years has tweaked small-business expensing under the Tax Code’s Section 179. The 2007 Small Business Tax Act was no exception, increasing the dollar amount and investment limitation.
Under the new law, the base $100,000 limit ($112,000 as indexed for inflation) increased to $125,000 for tax years beginning in 2007 and extending through 2010. The maximum deduction is phased out by the amount by which all qualifying property placed in service during the tax year exceeds the investment limitations.
The investment limitation for property placed in service in tax years beginning in 2007 was $400,000, as indexed for inflation. The new law retroactively raises the investment limitation to $500,000 for tax years beginning in 2007 through 2010. What’s more, the $500,000 amount is also indexed for inflation in tax years beginning after 2007 and before 2011.
Naturally, you cannot write off expenditures claimed for the disabled-access tax credit. However, the balance can usually be depreciated throughout a number of years. Or, those amounts may be claimed as an immediate deduction or write-off under Section 179.
Today, thanks to the new tax law changes, no longer does your practice — or you, as principal — face the uncertainty of a tax deduction that might or might not be around tomorrow, let alone at what level future write-offs will be.
Remember, however, that although you can spread out equipment purchases over the next few years because it is no longer necessary to put all purchases into 2007, the deduction is completely phased-out under the new levels for qualifying purchases above $625,000.
Plus, you have to decide whether this first-year expensing election for newly acquired equipment will benefit your practice now or in a later, more profitable, tax year when the depreciation deductions will be worth more.
For larger expenditures, such as those involving remodeling that may not qualify for the disabled-access tax credit or the Section 179 first-year expensing deduction, there is always the depreciation allowance.
With the Department of Justice reportedly cracking down on ADA compliance, now might be a good time for an ADA survey. Paying for the necessary improvements, additional equipment, or even the survey itself creates tax deductions. The cost of the survey is, in most cases, a legitimate business expense.
Remember: Section 179 deductions are not automatic. If you want to take the deduction, you must elect to do so, usually on the depreciation form, Form 4562, that is attached to your practice’s original return (including late-filed returns).
Recovering the cost of becoming ADA-compliant is far easier on the pocketbook than losing a lawsuit because of noncompliance.
Mark E. Battersby is a tax and financial advisor, freelance writer, lecturer, and author with offices in suburban Philadelphia. He can be reached at 610-789-2480.
DISCLAIMER: The author is not engaged in rendering tax, legal, or accounting advice. Please consult your professional advisor about issues related to your practice.