With many of our elevation tables, there is an incredible opportunity for you and your practice. Many times people miss out on opportunities to save money on taxes, often because no one ever takes the time to explain how you and your business can benefit from the tax credit.
Essentially, The Disabled Access Credit is a 50% tax credit available to any small business making an equipment purchase that makes it easier for a disabled person.
Credit vs. Deduction
To understand the value of the tax credit, you must first understand the difference between a “tax deduction” and a “tax credit”. A tax deduction is basically any valid expense you may incur in running your business. You deduct it from your revenues to determine your income, which you are then taxed on. A tax credit is much more valuable, as it is offset directly against any tax you owe.
Here is a simple illustration of how this works.
|Expenses (Tax deductions)||(175,000)|
|Income Tax (25%)||18,750|
|Less (Tax Credits)||(2,500)|
|Net Income Tax||16,250|
The use of the tax credit is just the same as getting 50% off the equipment’s purchase price, you just have to wait to file your taxes in order to get it back.
There are basically 2 main criteria your business must meet to qualify for the credit:
- Gross Receipts for the preceding year did not exceed $ 1 million.
- Business had no more than 30 full time employees in the preceeding year.
The other criteria relates to the equipment purchased. Eligible expenditures include amounts paid or incurred to acquire or modify equipment or devices for individuals with disabilities. Most chiropractic tables with elevation or high-low features meet these criteria.
Calculating the Credit
Calculating the credit is pretty straightforward. You take your total expenditure, subtract $250, and multiply the result by 50%. If you purchased a piece of equipment for $5,250, your tax credit would be $2,500 calculated as follows ($5,250 – $250 = $5,000, $5,000 X 50% = $2,500). The maximum amount of the credit is $5,000. The credit is calculated on IRS form 8826. If you are unable to utilize the entire credit in the current year because it is greater than your tax liability, you can use the remaining credit in future years.
While the time of year you make a qualifying purchase has no bearing whatsoever on your eligibility to use the credit, as a practical matter, the end of the year often makes more sense. Most taxpayers are on a calendar year and file their taxes in March or April. If you make a purchase in November or December, you will receive the benefit of the credit within a few months. If you make a purchase in January, you will have to wait 15 or 16 months to receive that same benefit. That is why many doctors make these types of purchases at the end of the year, to maximize their cash flow.
Tax credits of any kind can be very valuable and should not be overlooked. Everyone’s tax situation is different and it is recommended that you consult with your tax adviser for advice on your particular situation.