The Internal Revenue Service Code Section 179 enables independent pharmacies and other businesses to realize immediate savings for acquiring capital equipment. Since the late 1950s, this tax deduction has helped many pharmacies offset equipment costs The Protecting Americans from Tax Hikes Act (PATH), passed in 2016, increased the purchase price tax savings limit allowed by Section 179 to $500,000.
As the year comes to a close, it is important to evaluate your tax situation and identify deductions that will benefit your business. Purchasing equipment before the end of the year means you can benefit from Section 179, and potentially reduce your 2021 tax liability.
An explanation of Section 179
The Internal Revenue Code Section 179 allows businesses to deduct the costs of equipment and software acquired during the tax year. Businesses may invest in new or upgraded industrial packaging equipment to keep them competitive. As a pharmacy owner, if you buy or finance packaging equipment during 2021, you can deduct the whole purchase price from your gross income.
To deduct the full cost, you must place the equipment in service during the year of purchase. Section 179 lets small and medium-sized pharmacies write off their packaging equipment and software purchases up to $1,050,000. Once that spending cap is reached, you could be eligible for an extra bonus depreciation of 100%.
It’s important to keep in mind that to maximize the allowed deduction, your total equipment purchase for 2021 must not exceed $2,620,000.00. Once that limit is reached, the deduction will phase out on a dollar-for-dollar basis.
How the Section 179 savings works
It may sound counter-intuitive to spend money when trying to save, but that spending will actually result in tax savings. Because of Section 179, investing in packaging equipment and software helps you improve your business’s workflow while reducing the amount of taxes you owe when it comes time to file.
Let’s say you decide to spend $1,000,000 on software and packaging equipment for your pharmacy. Under the rules of Section 179, your business would be eligible for a 100% deduction. If you’re in a 21% tax bracket (based on earnings), your tax deduction would total $210,000 (21% of $1,000,000). Subtracting $210,000 from $1,000,000 means your true cost of investment would total $790,000. This hefty deduction could allow you to invest in a high-quality packaging system.
Section 179 qualifying purchases
It’s important to understand that not every business purchase qualifies for the Section 179 deduction. The assets that may qualify for the Section 179 tax deduction include business equipment, office furniture, computers, software, and technology that are purchased during the business year. Any packaging equipment and software you purchase for use in your pharmacy qualifies for the tax deduction, as long you put them into use during the business year in which they are acquired.
Deducting financing costs of equipment
Not every company will have the cash available to purchase new equipment. If you are in this position, don’t despair. If you choose to finance your equipment purchase, you can still benefit from Section 179. This is true whether you finance your purchase with a line of credit, vendor financing, or credit card. If you use financing with interest, you can deduct the interest payment. Your tax advisor can help you determine the best type of financing for your company’s tax situation.
For example, if you buy a machine in December that costs $20,000, you can put down $4,000 in cash and finance 80% of it by charging it to a business credit card. You wouldn’t have to pay the credit card bill until January of the following year, but you’ll qualify for Section 179 as long as you start to use the machine in your business before the end of December. If you report on the cash method of accounting, you can deduct the full price in the purchase year, even though you put 80% of the purchase price on the credit card and only had $4,000 out of pocket that year.
What does this mean for independent pharmacy owners?
If you’re an independent pharmacy owner, IRC Section 179 makes purchasing packaging equipment within reach by offering substantial tax savings. This can be a good incentive for immediately investing in a pouch packaging system and lowering taxes owed for the year.
And it benefits you, as strip pouch packaging is a highly demanded service in the industry. You can set yourself apart from the competition by offering this valuable service. Upgrading your packaging service can also help you increase your business overall. For instance, you could market your pharmacy to long-term care facilities.
By upgrading or investing in packaging equipment, you might realize the value in other areas as well. You could save on your labor costs by having packaging machines do the work. Another thing to consider: Outdated medical equipment costs pharmacies more in medication errors, product waste, and decreasing net profits. Newer systems can help improve errors and product waste while streamlining your workflow processes.
The Noritsu packaging equipment advantage
When you purchase packaging equipment from Noritsu, you end up with extremely reliable equipment and compatible software. You also partner with a company that understands the need for tailored solutions to your unique needs. Since no two pharmacies are exactly alike, Noritsu provides solutions that will be customized to your business model and clientele.
Noritsu has the experience to work with your independent pharmacy and create an efficient, integrated packaging system that maximizes labor and increases your competitiveness. With reliable, efficient, and versatile equipment, your pharmacy can stay focused on your customers instead of pharmacy operations. You can feel confident that your equipment can meet the changing needs of the pharmacy market.
Contact Noritsu today to learn more about how automated packaging equipment can benefit your pharmacy. And, for additional questions about Section 179, be sure to contact your tax professional.
