A Dental Practice Investment With An Immediate 45.5% Return

As an accountant and business adviser, I am no stranger to investment schemes touting fantastic financial gains over short periods of time. Sure, most of these claims are as phony as the foreign dignitary who wants to park his fortune in your bank account. But that doesn’t mean you can’t realize phenomenal returns from shrewd investing. And (wait for it) there’s actually no better place to look for such opportunities than your own dental office!

Technological innovations are changing dentistry. Thanks to a few new provisions in the tax rules, investments that once seemed completely out of reach may now be within your grasp.

Consider the situation of Dr. Smith:

Dr. Smith runs a sole proprietor dental office. She is interested in bringing CAD/CAM dental technology into her office. But she recognizes that her practice could also benefit from building out that new operatory. Dr. Smith knows that both investments have the potential to greatly enhance her financial potential. Yet the combined price tag of $200,000 is understandably daunting!

What if Dr. Smith could capture more than $90,000 of tax savings on these purchases within the first year? She could, and here’s how. In 2013 dental offices may deduct up to $500,000 in capital equipment purchases. This comes at the same time as an increase in the highest federal income tax rate to 39.6%. The combination of these two changes in the tax rules creates a perfect storm, permitting Dr. Smith to save as much as $91,000 if she purchases the CAD/CAM system and builds out the operatory this year.

Here’s how it breaks down:

Dental Office Investment                                                          $200,000

x Federal Tax Rate                                       39.6%                      79,200

x Effective Alabama Tax Rate                          3.0%                        6,000

x Medicare Tax Rate                                      2.9%                        5,800

   Tax Savings                                             45.5%                  $  91,000

The 39.6% bracket appears to be here to stay. However, the $500,000 expense limitation for capital expenditures is slated to drop back to $25,000 beginning next year. So if you are contemplating significant capital investments to take your practice to the next level, the time to act is now!