Buy now, write off later: factors influencing capital expenditure decisions and tax filings

A tax professional can help you decide which expenses qualify and other factors influencing capital expenditure decisions

Typically, a business expense is written off in the same tax year it is incurred. If you buy office supplies or purchase a television ad, for instance, the amount you pay is included in the current year’s tax forms as an offset against revenues earned. One exception is if a purchase is a capital expenditure. In this case, the write-off might occur immediately or, depending on the factors influencing capital expenditure decisions and the expense, might have to be taken over several years.

Understanding how these purchases can impact your chiropractic practice involves first recognizing which types of expenses qualify as capital expenditures.

Capital expenditures and chiropractic

Corporate Finance Institute (CFI) explains that capital expenditures refer to monies paid to buy, improve, or maintain long-term assets. Often referred to as CapEx, these are generally high-cost purchases that depreciate over time and if the purchase was reversed, it would likely result in financial harm or loss.

In the case of chiropractic, factors influencing capital expenditure decisions and longer-term assets you might purchase as a new practitioner could include the property and/or building where your practice will be located, higher-priced equipment such as an adjustment table or digital x-ray machine, and even your office furniture, computer equipment, and any necessary software.

Longer-serving chiropractic professionals would likely have different capital expenditures. Building improvements or expansions, replacement of worn-out equipment, and updating computer systems are all probable expenses for practices intent on maintaining or growing their patient base.

Capital expenditure tax write-offs: now versus later

Whether a capital expenditure can be written off during the tax year it was purchased or if it must be depreciated over time is governed, at least in part, by Section 179 of the IRS tax code. This section provides a thorough explanation of not only what is and is not considered a capital expenditure, but also how much you can deduct and your options for deducting now versus spreading the deduction over time.

Factors that can impact each of these specifications include when the property was placed in service, if it was purchased with cash or other financial means (such as a trade-in), the cost of the purchase, business structure, and more.

Updates to the tax code also affect what can be written off during the current tax year and which expenses have a delayed write-off. For example, in April 2018, the IRS released a notice which reported that the maximum same-year deduction for a section 179 property was increased from $500,000 to $1 million. The definition of a section 179 property was expanded as well and outlined what types of improvements to a building can be written off.

How a tax professional can help

Because tax rules and laws are constantly changing, working with a tax professional can help you decide which expenses qualify as capital expenditures under the current tax code and other factors influencing capital expenditure decisions. And if you have the ability to deduct those expenses immediately or over time, someone well-versed in the ramifications of each option can help you make the best decision for your chiropractic practice.

If you don’t already have a relationship with a tax professional that you trust, here are a few tips for finding one in your area:

• Ask other local chiropractors who they use to file their taxes. Finding a professional who has experience working with chiropractic businesses can help identify expenses that you might have inadvertently forgotten to include as deductions or write-offs. They’re also more familiar with the tax rules as they relate specifically to a chiropractic practice.
• Read reviews. One of the benefits of the online world is that it provides you convenient access to a tax provider’s reviews. Consumers can share their opinions on Google, Yelp, Facebook, and a variety of other platforms. Take the time to look through their comments. Is there a common theme in what everyone is saying — good, bad, or indifferent? Overall, does the provider have more satisfied or dissatisfied customers? Use this feedback to help you decide whether the tax professional might be right for you.
• Meet face to face. It’s one thing to be impressed with a tax pro on paper; it’s another to meet with them in person. Taking the time to have a short physical conversation with a prospective tax preparer enables you to ask any questions you may have about them and their experience. It also provides the opportunity to see if you mesh with their personality. If this person is going to be responsible for maximizing your capital expenditures, you want to feel comfortable conversing with them. If you aren’t, it could have financial repercussions, hurting your chiropractic practice in the end.

Now is the time to review all of your factors influencing capital expenditure decisions and maximize your tax write-offs and filings for this year and possibly saving for years to come.