The AVMA has been working to ensure that tax breaks beneficial to veterinary medicine are included in the end-of-the-year $650 billion tax package being negotiated by lawmakers this week.
Details of the tax breaks for veterinary small business owners are outlined below.
Section 179 and Bonus Depreciation
Veterinary clinic owners will be pleased that the Section 179 deduction will be made permanent in the tax package. This will give them the ability to immediately deduct up to $500,000 of the cost of new and used property and equipment with a phase-out beginning at $2 million. These amounts will be indexed to inflation. Currently, clinic owners can only deduct up to $25,000 and $200,000, respectively, for property and equipment. If a clinic exceeds the phase-out amounts provided under this deduction, then they can use the bonus depreciation credit until 2019.
Special rules under Section 179 also allow clinic owners to deduct expenses for computer software. This provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016, and by treating air conditioning and heating units placed in service in tax years beginning after 2015, as eligible for expensing.
The tax package also extends bonus depreciation expensing for new property acquired and placed in service during 2015 through 2019. The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017, and phases down, with 40 percent in 2018, and 30 percent in 2019. Learn more about Section 179 and bonus depreciation here.
Research and Development Tax Credit
The Research and Development Tax Credit has been made permanent under the tax package. Beginning in 2016, businesses with less than $50 million in gross receipts can use the credit to offset the alternative minimum tax. In addition, certain start-up businesses that may not have an income tax liability will be able to offset payroll taxes with the credit.
Medical Device Tax
A two-year suspension of the 2.3 percent medical device tax was also included in the tax package. The AVMA has been following the issue since its passage under the Affordable Care Act (otherwise known as “Obamacare” or ACA), as a means to help fund the national healthcare system. The tax, which applies to human medical devices that can also be used in veterinary clinics, went into effect in 2013. Whether the suspension of this tax becomes permanent will depend in large part on who becomes the next president. The medical device tax raised about 75 percent of what had been anticipated, just $913 million in the first half of 2013, from 5,107 medical device tax forms that were filed.
The tax package also delays until 2020 the tax on high-cost, employer-sponsored health insurance. This is often referred to as the “Cadillac Tax” and is a central part of ACA. It was slated to impose an excise tax of 40 percent starting in 2018 on health plans whose value is more than $10,200 for individual coverage and $27,500 for families (the tax only applies to the amounts that exceed the threshold). The excise tax would have the effect of discouraging companies from offering high-cost health plans to employees as they trim their spending on plans to get under the excise-tax cap.
The Wall Street Journal reports that an employer offering an employee $10,200 in health benefits in 2018 would pay $10,200 to the insurer, while an employer offering a plan valued at $11,000 would not only be paying $800 more to provide the plan, but would also be subject to an excise tax of 40 percent of $800, or $320.
Agricultural Research Organizations (AROs)
Also included in the tax package is a provision modifying the tax code to allow the creation of Agricultural Research Organizations, a change the AVMA has supported since the 113th Congress. These new AROs would use private dollars to improve nutrition and food production and would be required to work with land grant and agricultural colleges. The provision was modeled after the Medical Research Organizations (MRO), which were designed to promote private philanthropy into the study of human health. Congress created the provision for MROs in 1956.
Veterinary Medicine Loan Repayment Program Enhancement Act
Sadly, not under negotiation in the tax package was a provision that would abolish the withholding taxes on loan repayment awards for veterinarians working in underserved areas of the country as part of the Veterinary Medicine Loan Repayment Program. The provision has been deemed a “new” tax break, versus an expiring or expired tax provision, and therefore Congress has decided not to include it. The AVMA will continue to push lawmakers to include the provision in future tax legislation.
For more information, contact Gina Luke at glukeavma [dot] org.