A new laboratory suite can take the bite out of 2010 taxes.
It’s that time of year when veterinarians decide to make an in-house laboratory purchase or find they need to hold off. Fortunately, there are purchase options for 2010 tax deductions that allow for a write-off whether or not the practice has made a profit.
The Small Business Jobs and Credit Act of 2010, signed into law by President Obama on Sept. 27, made veterinarians’ capital improvement plan options a lot better. If a veterinarian has a profitable year in 2010, they could write off on their tax return as much as $500,000 on equipment purchases.
The law expands section 179, doubling the write-off amount from $250,000 to half a million dollars. This allowance could boost any practice’s bottom line, experts say. But, if this sounds too good to be true, it might be. Accountants should be able to properly advise a veterinary client based on the practice’s financial situation and state guidelines.
“The $500,000 is a federal limit, not a state limit,” says Gary I. Glassman, CPA, of Burzenski & Company, P.C., a Connecticut-based accounting firm. “Each state has its own income tax code that isn’t always the same as federal code. There’s no doubt this law will help veterinarians get their tax bite down, but veterinarians have to know state allowances and where they are from a profit perspective before making any large investment.”
Veterinarians also need to keep in mind that the tax write-off is only a percentage of the total purchase cost. If a veterinarian is in the market for in-house laboratory analyzers, and the cost is $40,000, about 30 percent to 35 percent of that could be deducted from taxes, while the other 65 percent to 70 percent is paid out of pocket. While each piece of equipment can only be deducted from taxes once, section 179 allowances will spill into 2011, which means a 2010 purchase could be written off in 2011 taxes if practice profit is expected to be higher in 2011.
“If a practice expects to be in the 15 percent bracket for 2010 but predicts in 2011 their practice will be in the 25 to 30 percent bracket, it might be advisable to wait until 2011 to write off the equipment purchase,” Glassman says. “A veterinarian should expect a piece of equipment to pay for itself within three to five years, with immediate evidence of revenue. If a piece of equipment’s monthly payment is $200, the practice needs to have a profit of more than $200 to see a profit, not simply break even—and certainly not a loss.”
A veterinary practice with revenue loss in 2010 is disqualified for the total write-off up to $500,000, but the 50 percent, first-year bonus depreciation allowance was also extended through 2010, so taxpayers may then claim the regular depreciation amount on the remaining 50 percent of the asset's basis.
Glassman says many practices make end-of-the-year purchases so they can more accurately assess what their annual profit was. In addition to making sure the equipment is economically feasible, a series of additional prerequisites must also be met.
“Before buying an in-house laboratory, ask yourself, ‘How will the lab be used and for what cases?’” says Robin Downing, DVM , CVA, CCRP, AAPM, owner of Windsor Veterinary Clinic in Windsor, Colo. “Will there be pre-anesthesia screening? Which patients will have labwork done as part of their wellness examinations? For early disease discovery, what labwork will be done, and how often will it be repeated? How often will patients on chronic-use medications have their labwork updated? Which tests will be done for which medications? What will be the SOP/protocol for metabolic profiling for patients who come into the hospital sick? What fees will be charged for which tests? How will the tests be bundled? How will the fees for the various tests change when tests are bundled? These are all important questions that must be answered at some point anyway, so answer them before the lab is in place to be able to make a reasonable plan for allowing the lab not only to pay for itself, but to become an important revenue and profit center.”
Laboratory equipment manufacturers say that veterinarians’ chief concern with bringing the laboratory in-house is accuracy of the equipment. While the manufacturers who spoke with Veterinary Practice News say accuracy of the products on the market today is “on mark,” veterinarians should further investigate if the equipment will increase client compliance; what education/training is offered through the company; upgrade options; customer service; the hours the company is available to help clients; and the product’s footprint and ability to integrate with practice management software.
“There is absolutely no question that we were able to increase labwork compliance once we acquired an in-house lab, and that was long before anyone was talking about or paying attention to compliance,” Dr. Downing says. “At this point, because we have easy access to nearly immediate answers to our metabolic questions, we make it so easy for the client to say ‘yes’ to our recommendations. Allowing us to review the results in person and in real time saves money for us and our clients.”
Downing says doing research on equipment options is an imperative step to making an intelligent, profitable decision.
“Every veterinarian has had a patient that makes it difficult to get a substantial blood sample from, whether that’s due to its physical size (which is the case with many exotics), its disease state or because it isn’t cooperative,” says Craig Tockman, DVM, director of professional services at Abaxis North American Animal Health. “Veterinarians are leaning more and more toward purchasing a piece of equipment that doesn’t require a large sample.”
Some companies will allow veterinarians to use the equipment they are considering in their practice prior to purchase, which many might see as the start of good customer service.
“We strongly suggest demonstrations and test runs before buying equipment,” says Cheryl Roge, director of professional services at Scil Animal Care Co. “Any piece of equipment should be tested before making a commitment. Also, veterinarians should know the product’s warranty, if the product will be serviced in the U.S. and if a loaner will be provided.”
It’s easy to be enticed by the way a piece of equipment looks on paper or at shows, Dr. Roge says.
“But there’s a lot more to making a purchase than just what the product does,” she adds. “Take into consideration if the company offers continuing education and if staff can attend those classes.”
Veterinarians might also want to find out if the training can be conducted on site and if training new, future staffers is free or at an additional cost.
“Training imperative to using the equipment properly, and the ability to access training on demand is also necessary,” says Lee Barteaux, DVM, medical affairs manager at Idexx Laboratories Inc. “Using a company that offers online webinars, on-demand training, seminars and conferences will ensure uninterrupted practice workflow and a teaching method that accommodates all practices.”
Dr. Barteaux adds that training options should be manageable online. Some companies provide online accounts whereby clients can monitor staff, document course availability and view company education updates.
Veterinarians and manufacturers alike say the ever-evolving technology of laboratory equipment often gives cause for a new purchase before wear and tear takes its toll.
“It’s feasible for an entire laboratory of equipment to be housed in 2 to 3 feet of workspace,” Dr. Tockman says. “Technology allows for equipment to be more compact now. If real estate is in short supply, the size of the piece of equipment should be considered.”
Upgrades are often a facet to investigate in a company’s warranty. Upgrades may be included free of charge under certain conditions, such as within a designated time frame of purchase. The cost of additional upgrades should also be noted.
It’s not asking too much to expect the analyzer manufacturers to provide 24/7 customer service to clients. To stay competitive, most companies are making this offer.
“Every veterinarian should expect free, 24/7 customer support,” says Claudine Zachara, vice president of marketing for Heska Corp. “This is key, especially for practices operating outside of typical office hours.”
Some companies offer incentives throughout the year at conferences and during other promotional time frames, but a reduced price is something to ask about when making a multiple equipment purchase.
“Heska offers a customer rewards program, PartnerAdvantage, which allows customers to earn points for purchasing Heska products,” Zachara says. “By purchasing in multiple categories of products, customers maximize their point accumulation, and ROI becomes even greater. These points can be monitored online and redeemed for any product or service the company offers.”
“Analyzers that communicate with practice management software are one of the newest time-saving features,” Roge says. “This can be of significant importance to paperless practices as well as those who are working toward that goal.”
Integration eliminates the need for scanning records and minimizes human error risk. Integration capabilities are sought after when the practice wants the option for test results to be sent directly to the patient’s record, but to retain the capability to print results as well.
Veterinarians can enjoy more control over their labwork prices with an in-house laboratory, Roge says.
“When a test costs the veterinarian $35 to send to the reference lab, but it costs $3 to run in-house, the veterinarian can see more revenue and even pass savings onto clients,” Roge says.
Mostly, veterinarians pursue in-house laboratories to provide an enhanced standard of care to clients, experts say. Tax write-offs and bottom line benefits are “icing on the cake.”
“When we upgraded to our new lab, we left our fees the same, but our overhead expenses dropped,” Downing says. “As a consequence, we ended up with a healthier profit margin at the same time that we began providing an even higher standard of patient care.”
Read the full article in the November issue of Veterinary Practice News. To read the article, readers must be a subscriber. To subscribe, click here.