October 2018

Business Equipment vs. Supplies for Tax Deductions

Published
October 1, 2018

Here we are in OCTOBER!

It is that time of the year again – when you should be considering tax strategies for year-end and what equipment and improvements to the practice would be helpful for you and your

practice. This article below by Jean Murray at https://www.thebalancesmb.com/business- equipment-vs supplies-for-business-taxes-397638 has good information to understand.

As always, contact your accountant for advice and counsel on all your tax questions. Please know that I can be a valuable advisor on dental equipment, supplies and ideas pertaining to strategies your accountant might suggest for this upcoming year end. Let’s visit to discuss your year-end equipment purchases in 2018.

Business equipment and business supplies are often confused when a business owner is completing a business tax form. We'll look at the two types of purchases and how they are considered for both accounting and tax purposes.

EQUIPMENT AND SUPPLIES - BUSINESS USE, NOT PERSONAL

First, note that these purchases are for business purposes only, not for personal use. If you buy business equipment, like a computer, it must be used entirely for your business in order for you to deduct the full cost as a business expense. The same is true for supplies. Supplies, like printer paper, cannot be used for personal printing. While this doesn't seem like an important distinction, an IRS audit might find these purchases non-deductible if you can't prove their use as a business expense.

Business equipment that can be used for both personal and business purposes is called listed property. You may be able to deduct a portion of the cost of business equipment if you can prove the amount of business use.

Business and equipment and business supplies should be purchased with your business credit card or bank account. But the purchase alone doesn't prove their use as a business expense.

The most important thing to remember about the difference between business supplies and business equipment is that supplies are a current asset, while equipment is a long-term asset. Current assets are those assets used up within a year (more or less), while long-term assets are used over several years.Yes, I know copy paper can sit on a shelf for over a year, but this is just a general guideline for categorizing assets for tax purposes.

Since supplies are supposedly used up within the year of purchase, the cost of supplies as current assets is expensed (taken as a deduction) the year they are purchased. Since equipment can be used over a longer period of time, the cost of this equipment is and the cost of business equipment is depreciated (taken as a deduction over the useful life of the equipment).

In each case, the purchase cost is a deductible business expense (as long as the item purchased is used for business purposes), it's just that the expense may be taken over a shorter or longer period of time.

WHAT ARE BUSINESS SUPPLIES?

Business supplies are those items purchased which are typically used up during the year. The most common types of business supplies are office supplies, including supplies used to run copiers, printers, and other office machines.

If you are buying supplies for use in products you manufacture or sell, including packaging and shipping supplies, these supplies are handled differently for accounting and tax purposes.

Supplies for making, shipping, and packaging products are considered part of the cost of the goods sold and are part of the Cost of Goods Sold calculation. At the end of a year, an inventory is taken of these supplies, as part of this calculation.

For accounting purposes, business supplies are considered as current assets. Business supplies purchases are deducted on your business tax return in the "Expenses" or "Deductions" section.

WHAT IS BUSINESS EQUIPMENT?

Business equipment is tangible property used in a business. Equipment is considered as more permanent, longer lasting than supplies, which are used up quickly. The term equipment includes machinery, furniture, and fixtures, vehicles, computers, electronic devices, office machines,Equipment does not include land or buildings owned by a business.

MORE ABOUT CAPITAL ASSETS

From an accounting standpoint, equipment is considered capital assets or fixed assets, used by the business to make a profit. Purchase of equipment is not accounted for as an expense in one year, but the expense is spread out over the life of the equipment; that is, it is depreciated.

Gains or losses on the sales of capital assets, including equipment, are handled differently, from both tax and accounting perspectives, from regular income of a business from sales. Capital gains are taxed differently from sales income.

A Happy Customer is theBest Business MarketingStrategy

CDA Presents 2018:

Can Medical Billing Improve Your Practice's Revenue?

Last month at the CDA this was one of the presentations covered and I think it is of significance and that you might enjoy this information from Dr. Olya Zahrebelny as reported by on www.drbicuspid.com.

The question every practice asks is "How do we increase our revenue?" The question Olya Zahrebelny, DDS, wants practices to ask is "How can we help patients pay for necessary and complex dental treatment that they often decline because of the out-of-pocket expense?"

"Offices spend a lot of wasted time chasing dental insurers for negligible sums (under $1,000) when, for the same amount of time, they can be pursuing much larger payments for comprehensive treatment from medical benefit plans," she said.

Dr. Zahrebelny spoke with DrBicuspid.com in advance of her September presentation at the California Dental Association's CDA Presents 2018 meeting.Her presentation was titled "Medical billing: There's nothing illegal about it."

COVERED PROCEDURES

Many offices aren't aware that so many of the procedures performed in the oral cavity are covered by medical benefit plans, according to Dr. Zahrebelny. She listed examinations, consultations, x-rays, and appliances for sleep apnea and temporomandibular joint disorders as among those covered.

She also cited appliances for habit breaking, orthodontic appliances such as palatal expansion appliances; surgical procedures, including periodontal surgery, bone grafts, and tissue grafts; implant reconstruction procedures; treatment for traumatic injuries; biopsies; and incisions as being billable as well.

"Many practices don't know that interim prosthetics are covered routinely with surgical procedures,"Dr. Zahrebelny said. "In the case of a traumatic injury, for instance, the definitive prosthetic is also covered."

In addition, prosthetic devices are covered if a patient has had major medical issues, such as treatment after cancer or radiation therapy, she noted. This includes crowns, bridges, and other removable and fixed prosthetics.

GETTING STARTED

For practices who want to begin billing medical insurers, it is important to start slowly,Dr. Zahrebelny advised.

"During my presentation, I'll show the audience checks that are for $60,000 or $80,000, for instance,"she said. "Everyone wants to start billing for those 'megacases', but I tell them that they need to build up to billing for the bigger surgical cases."

She tells her clients to begin with billing examinations, radiographs, and appliances.

"Those are slam dunks if you know what you are doing," Dr. Zahrebelny said. "Then work up to the bigger surgical cases."

Practices have to learn the process and become comfortable with it to have the best chance of ongoing success, she noted. She recommends that practices allot four to six months to become accustomed to the process, which differs greatly from billing dental insurers.

Dr. Zahrebelny also described the credentialing process and the areas where dental offices often have their claims rejected. The first is that a practice is not willing to take it one step at a time.

"A practice has to learn it correctly to begin with,"she said. "I've seen many practices that seem to think that they can google the information. I recommend that practices take the time to attend a course that takes them from A to Z through the process."

The second is when the dentist is not properly credentialed.

"If a doctor is not properly credentialed, then every single claim that the office submits is going to be denied," she said.

Becoming credentialed is different from being a participating provider in a medical insurance company's network, she added. Rather it means being credentialed with an organization called the Council forAffordable Quality Healthcare (CAQH).

"If you aren't properly credentialed and the information that CAQH has does not match the information about you on the claim form that is submitted, it will lead to rejection every single time," she said.

Unlike some dental insurance billing, the vast majority of medical insurers require electronic claim filing, and all will require practices to do so by the end of 2018.

Dr. Zahrebelny said many dental practices tell her that medical billing does not work. She sometimes finds that this is because the practice's biller is filing claims via paper instead of electronically.

"Ninety-nine percent of the time they are rejected for that reason alone," she said.

Many practices also complain about the need to obtain precertification for each procedure.

"I tell them that this usually takes no more than 72 hours when done online through their clearing houseportal," Dr. Zahrebelny said. "Look at it from the insurers' point of view -- if you are submitting a paper claim and you can wait six to eight weeks for a mailed response, how medically necessary is that procedure?"

For the process to work, it is extremely important to have the doctors on board with the whole program and understanding what their role is in the process, she noted. The office will not be successful if the biller is tasked with going about this process alone.

"The dentist has to provide the information in the right format," she added. "It's not like you have todo your exam or procedures differently, but how you report the information in the patient's electronic health records and clinical notes is different."

Dr. Zahrebelny said that she reassures her clients that the way they write their notes for medical insurers is more than acceptable for dental insurers, but the notes must come from the doctor.

"I remind my clients that the notes have to come from the doctor, not the biller," she said. "These are legal documents detailing the patients' history, clinical and radiographic findings, presenting conditions, previous therapies, surgical procedures, and clinical progress throughout their ongoing and current treatment. They must come from the doctor or clinical personnel and not the biller."

Your mindset matters. It affects everything - from the business and investment decisions you make, to the way you raise your children, to your stress levels and overall well-being.
- Peter Diamondis
At Patterson Dental we often talk about creating a great “patient experience” and why this is so important in your practice. I think we can all agree that patient’s purchasing habits have changed over the last few years. The question is have we adapted to our patients? Are we creating more value for our services and building stronger relationships? I want to do this in my business and also want to help you do this in your practice. I believe we have great ideas to share and help implement in your practice.Let’s work together and reach our potential and have some fun in dentistry!“”

-Brad Backman