Purchasing a PACS system is a big investment. You want to make sure that you purchase a system that will work with your practice for a long time to come. One of the decisions you have to make is whether you want to purchase the PACS outright, lease it, or chose one of many payment options, such as the fee per study option. How you choose to pay for your PACS will impact your yearly taxes.
There are two basic tax classifications for the purchase of a PACS: capital asset or operational expense. If you classify your PACS as a capital asset, then the PACS is purchased outright with the cost being amortized over time and treated as a write off. This method is ideal if you have a set amount of cash on-hand and want to lower your total cost over time. When a PACS is classified as an operational expense, the cost of the system will be paid out of monthly expenses. Any time you purchase cloud-based services, you will classify that as an operational expense.
If you purchase your PACS outright, you can deduct the cost under Section 179 of the IRS Tax Code. Section 179 allows businesses to deduct the total cost of equipment and software purchased for business use at once, rather than depreciating the cost of the purchase over several years. This essentially allows customers to accelerate depreciation of the equipment and the related tax savings. In past years, Section 179 was a major buying incentive for consumers. Last year, customers who purchased $2 million or less of equipment or software could deduct up to $500,000 on their taxes. The benefit for purchases over $2 million decreased on a dollar to dollar deduction scale. In addition, a depreciation bonus allowed for the immediate depreciation of 50% of the cost of new equipment beyond the $500,000 limit.
However, in 2014, the deduction cap was lowered from $500,000 to $25,000 for purchasing $200,000 or less, and the bonus depreciation expired. This means that, depending on the cost of your PACS, there may not be as high of a tax incentive to buy outright.
When customers lease equipment or software, or pay for software as a service (SaaS) the total amount of yearly expenses can be deducted as an operational expense. The cloud-based options fall under this classification. Although it may cost you more over the long term, leasing or paying for software as a service may have an increased tax benefit in 2014 and save you more money in the short term. And, since SaaS doesn’t depreciate, you can recognize these tax deductions every year.
Each of these options has advantages and disadvantages, and it’s best to talk to your accountant to see which option is the best fit for your practice. Knowing which option will save you more in taxes may impact your budget and purchasing decisions.