Chiropractors can use capital expenditures (CAPEX) to make practical decisions about purchasing equipment or business-related property.
The expenses might be deductible over a period of time or could be used as a one-time deductible in the year the asset was purchased. However, tax laws and requirements change from year to year so it is wise to keep up with those changes and use deductions available to you.
What are capital expenditures?
CAPEX are different than current expenses for your practice. The Internal Revenue Service allows business owners and companies to lower the amount of taxable income by deducting the cost of items that help that business operate. But those expenses must be reported in the right way. Day to day expenses, such as rent or electric bills, are reported and expensed in the year in which they were made. CAPEX are asset purchases and are considered long-term investments in the business and are expensed within a period.
The following are some examples of CAPEX:
· Computers and technology
· Business vehicles
· Property purchases including real estate
· Equipment or machinery
Generally, if the asset is useful for more than a year, it could be a capital expenditure. For instance, an internet bill is an expense, but a computer is a capital expenditure. The cost of that computer can be expensed in one calendar year, or spread out between multiple years. The deduction could reduce your tax by depreciating such an asset, and can add an economic benefit to the business as a whole.
The IRS states that capital expenditures are organized into one of the following three categories:
· Startup costs. This could mean that all costs incurred to start a business could be considered capital expenditures. Consult with your tax preparer in this case, and be meticulous about keeping any and all records of expenditures of any kind.
· Business assets. Buildings, land, franchises or business furniture can be considered business assets.
· Improvements. Upgrades to computer software programs, machinery or property may fall into this category.
The total amount of an asset is typically not deducted during the year it was purchased. Instead, the deduction begins the year after the purchase, continuing for a number of years. A depreciation expense decreases the business profit each year until the cost is recovered over those years, or when the item has no value.
However, an expense that falls under Section 179 of the tax code is a business asset that can be deducted right away. Some eligible items might include computers, business furniture or software programs such as accounting software.
Using capital expenditures to your advantage in Q4
You may be contemplating a purchase and have decided to wait until next year. But if you buy that equipment in the final quarter of the year (Q4), you are allowed to write off that purchase the next year, assuming it falls into the CAPEX categories that are approved by the IRS.
If you are opening a new practice, you will have to buy tables, computers, office furniture, diagnostic tools, traction units and more. If you have an established business, you may have to add space to the existing property, upgrade obsolete equipment or make your property ADA accessible.
ADA small business tax deductions
If your business is not ADA accessible, structural adaptations or otherwise accommodating the needs of staff and clients could create eligibility for tax deductions or credits. The disabled tax credit (Form 8826) is open to businesses that earned $1 million or less, or had a maximum of 30 employees in the previous year.
The barrier removal tax deduction is available for businesses that remove obstacles to persons with mobility issues. Those obstacles might be architectural structures or other barriers that prevent ease of transportation for the disabled or elderly.
Both the disabled tax credit and the barrier removal credit could be used in tandem if expenses meet requirements in both credit categories, and the deduction is equal to the difference between the total expense and the amount of credit that is claimed. Consult your tax preparer for clarification and guidance, and go to ADA.org for more information about tax incentives.
What is new for the 2023 tax year?
IRS’s Publication 946 reports new depreciation guidelines for the 2023 tax year. Section 179 allowed businesses to write off the cost of qualified property up to a certain amount during the year it is purchased and placed into service. Beginning on 2023, the expense deduction is maxed at $1,160,000. According the IRS website, the limit is “reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000.” Maximum deduction for sport utility vehicles is $28,900.
The phasing down of the special depreciation allowance for qualified property purchased after Sept. 27, 2017 and put into service between the dates of Dec. 31, 2022 and Jan. 2024 is now 80%. There may be some exceptions, so always consult your tax expert before filing.
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