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.
It is important to evaluate your tax situation and identify deductions that will benefit your business. Purchasing capital equipment, like a compliance packaging solution, will not only bring new efficiencies and labor savings, it means you can benefit from Section 179, and potentially reduce your tax liability.
Understanding IRC Section 179 and Its Impact on Pharmacies
As a pharmacy owner, managing finances and minimizing tax liabilities are crucial to the success and growth of your business. One key tax provision that can help you achieve this is IRC Section 179. This section of the U.S. tax code allows businesses, including pharmacies, to accelerate the deduction of certain types of property, such as equipment and software, rather than depreciating the cost over several years. As a pharmacy owner, if you buy or finance packaging equipment, you could be eligible to deduct the whole purchase price from your gross income for that year.
In this article, we’ll explore how Section 179 works and how pharmacy owners can take advantage of it to save on taxes, invest in new equipment, and enhance their operations.
What Is Section 179?
Section 179 of the IRS tax code allows businesses to deduct the full cost of qualifying equipment, software, and certain property purchases in the year they are acquired, rather than spreading the deduction over several years. This provides immediate tax relief by reducing the taxable income in the year the property is placed in service.
For tax year 2025, businesses can deduct up to $1,160,000 for qualifying property, with a total investment limit of $2.89 million. Beyond this threshold, the deduction begins to phase out, meaning that larger investments will result in reduced tax savings.
How Does Section 179 Benefit Pharmacies?
Pharmacies often need to invest in expensive equipment to remain competitive and compliant with regulations. From point-of-sale systems to packaging and dispensing machines, the costs of these assets can add up quickly. 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. Section 179 offers pharmacies the opportunity to deduct the cost of these assets in the year they are purchased, reducing their taxable income and resulting in significant tax savings.
Here are some ways pharmacies can benefit from Section 179:
- Deducting the Cost of Equipment
Pharmacies rely on equipment like pill counters, automated dispensing machines, and inventory management systems to improve efficiency and accuracy. With Section 179, pharmacy owners can deduct the full cost of these assets in the same tax year they’re purchased, providing immediate financial relief.
- Enhancing Cash Flow
By taking advantage of Section 179, pharmacies can lower their tax liability for the current year, freeing up cash to reinvest in the business. This can be especially helpful if you’re looking to purchase new equipment or expand your operations.
- Supporting Technology Investments
As technology continues to play a larger role in the pharmacy industry, investments in new software and technology systems are necessary. Section 179 allows pharmacies to deduct the costs of certain software, such as pharmacy management systems or electronic health records (EHR) software, making it easier to integrate the latest technology without the burden of high upfront costs.
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.
What Qualifies for Section 179 Deduction?
To qualify for a Section 179 deduction, the property must be used for business purposes more than 50% of the time. For pharmacies, this means that equipment such as:
- Automated dispensing systems
- POS (point-of-sale) systems
- Pharmacy management software
- Medical equipment
- Security systems
- Furniture and fixtures (if used for business purposes)
Other than real estate, most tangible property used in the operation of a pharmacy can qualify for the Section 179 deduction.
How to Maximize Section 179 Benefits
To make the most out of Section 179, consider the following strategies:
- Plan Purchases in Advance
If you know that your pharmacy will need new equipment or software in the near future, try to make these purchases before the end of the tax year. By doing so, you can maximize your Section 179 deduction and potentially lower your tax liability for that year.
- Keep Track of Business Use
Remember, the property must be used more than 50% for business purposes to qualify for Section 179. Make sure you accurately track how your equipment is used throughout the year to avoid any issues with the IRS.
- Take Advantage of Bonus Depreciation
In addition to Section 179, you may also be able to take advantage of bonus depreciation, which allows for an additional deduction on qualified property. This can be especially beneficial if you’ve exceeded the Section 179 limit.
- Consult with a Tax Professional
Tax laws can be complex, and each pharmacy’s situation is unique. Consult with a tax professional to ensure that you’re maximizing your deductions while staying compliant with tax regulations. They can help you navigate the intricacies of Section 179 and ensure that your pharmacy is making the most of this valuable tax provision.
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 advantage of choosing a compliance packaging system from Noritsu
When you purchase packaging equipment from Noritsu, you have extremely reliable equipment and compatible software. You also partner with a company that understands the need for solutions tailored 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.
Conclusion
IRC Section 179 provides a significant opportunity for pharmacy owners to reduce their tax burden while investing in critical equipment and technology. By taking advantage of this provision, pharmacies can improve their operations, enhance cash flow, and stay competitive in a rapidly evolving healthcare landscape. However, it’s essential to understand the eligibility requirements, limits, and deadlines to maximize the benefits of Section 179. Consulting with a tax advisor can help ensure that your pharmacy makes the most of this powerful tax-saving tool.
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.
