Compliance with disability act can bring tax savings

It has been 17 years since the Americans with Disabilities Act (ADA) was signed into law. Although some veterinarians still fall short when it comes to making their business premises — and the practice itself — ADA compliant, others have used financial and tax incentives created to help ease the cost of complying with the ADA to improve and grow their practices.

With the Department of Justice cracking down on compliance, now might be a good time to explore how those incentives can benefit your practice.

The ADA is a federal law that prohibits discrimination against anyone — both clients and employees — with physical handicaps. It covers hiring practices and the design of buildings that serve the public.

There are countless examples of professionals and businesses acquiring special equipment to enable them to serve — or better serve — those the ADA was designed to help, but such acquisitions must be properly documented.

A dentist claimed his practice was better able to serve disabled patients thanks to the purchase of a new X-ray machine; however, he failed to prove that the purchase was aimed at ADA compliance. An optometrist's purchase of an automatic refractor, on the other hand, qualified as a "reasonable modification to a facility to provide services to disabled individuals." Prior to the purchase, the optometrist was forced to turn away individuals who were disabled. The U.S. Tax Court approved the equipment even though non-disabled patients could use the refractor, too.

An accessible business

While there may not be much equipment that a veterinarian can claim as bringing his or her practice into ADA-compliance, there are a number of tax breaks under the ADA statute that can be advantageous to DVMs. These can help slash the cost of other equipment and property acquired by the practice.

To receive a tax credit, a qualified small business is defined as one with gross receipts of $1 million or less, or one that did not employ more than 30 full-time employees in the preceding tax year. The amount of credit to such firms is 50 percent of the amount of yearly eligible access expenditures that exceed $250 but do not exceed $10,250. The maximum credit, the amount by which the annual tax bill will be reduced, is $5,000.

A veterinary practice can claim the credit for the following costs:

• Removing architectural, communication, physical or transportation barriers that prevent a business from being accessible to, or usable by, disabled people

• Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals

• Providing qualified readers, taped texts and other effective methods of making visually delivered materials available to visually impaired individuals

• Acquiring or modifying equipment or devices for disabled individuals, or

• Providing other similar services, modifications, materials or equipment.

It's the law

The ADA requires practices to remove accessibility barriers in their offices and clinics regardless of when the facility was built. This is a proactive requirement, not limited to capital improvements or remodeling.

An ADA survey conducted by a professional can reveal accessibility barriers, thus helping veterinarians understand their exposure and take steps to remove barriers. An ADA survey could be required as part of a settlement with the Justice Department if a claim is brought against the veterinary practice.

On the plus side, being proactive in conducting an ADA survey may help avoid future lawsuits from clients — or employees — who allege ADA violations. In the past, the government ruled favorably on businesses and professional practices with a track record of trying to remove ADA barriers. In most cases, the cost of remediation is far less than the legal and settlement costs associated with a claim.

Section 179

The cost of making a veterinary practice ADA-compliant frequently exceeds the amounts qualifying for the limited disabled-access tax credit. An expense deduction, or immediate write-off, is available for the cost of newly acquired equipment and property, called Section 179 property.

In lieu of depreciation deductions spread out over a number of years, tax rules allow veterinary practices with sufficiently small amounts of annual investment to deduct (or expense) equipment and property acquisitions under Section 179 of the tax law.

In general, lawmakers — and the IRS — describe property qualifying for this immediate deduction as depreciable tangible personal property purchased for use in the active conduct of a trade or business.

Almost every tax-law change in recent years has tweaked small business expensing under the Tax Code's Section 179. The 2007 Small Business Tax Act was no exception, increasing both the dollar amount and investment limitation.

Under the new law, the $100,000 base limit ($112,000 as indexed for inflation) is increased to $125,000 for tax years 2007 through 2010. The maximum deduction is phased out by the amount by which all qualifying property placed in service during the tax year exceeds the investment limitations.

The investment limitation for property placed in service starting in tax years 2007 to 2010 was $400,000, indexed for inflation. The new law retroactively raises the limitation to $500,000 for tax years 2007 through 2010. What's more, the $500,000 also is indexed for inflation in tax years beginning after 2007 and before 2011.

Naturally, expenditures claimed for the disabled-access tax credit cannot be a Section 179 write-off. However, the balance is usually depreciated over a number of years. Or, those amounts may be claimed as an immediate deduction or write-off under Section 179.

To qualify as Section 179 property, the equipment or property must be tangible Section 1245 property (new or used), depreciable and acquired in the active conduct of a trade or business. Air conditioning and heating units are specifically excluded as Section 179 property.

ADA/179 options

Today, thanks to the new tax-law changes, the inflation-adjusted $100,000 write-off has been extended through 2009. No longer do veterinary practices, or their principals, face the uncertainty of a tax deduction that might or might not be around tomorrow, let alone at what level future write-offs will be. This tax break has been extended through 2010 and it, too, is indexed for inflation.

Remember, however, while every veterinary practice can spread out equipment purchases over the next few years because it is no longer necessary to cram all purchases into 2007, the deduction is completely phased out under the new levels for qualifying purchases above $625,000. Also, there is the matter of deciding whether this first-year expensing election for newly acquired equipment will benefit your practice now or in a later, more profitable, tax year when the depreciation deductions will be worth more.

Accessing ADA savings

Now should be a good time for that ADA survey. Paying for the necessary improvements, additional equipment or even the survey itself creates tax deductions. The cost of the survey is, in most cases, a legitimate business expense.

Whether through building improvements or new equipment, the expense of making a practice accessible to the disabled also generates tax savings. There is that tax credit, a direct reduction of up to $5,000 in the operation's tax bill, for a start.

For expenditures that do not qualify for the tax credit, an expense deduction, or immediate write-off, is available for veterinary practices that choose to treat the cost of newly acquired equipment — called Section 179 property — as an expense rather than a capital expenditure.

Remember, however, the Section 179 deduction is not automatic. Those veterinarians and practices that want to take the deduction must "elect" to do so. Generally, the election is made using the form for depreciation, Form 4562, and attaching it to the practice's original return (including late-filed returns).

For larger expenditures, such as those involving remodeling that may not qualify for the disabled-access tax credit or the Section 179 first-year expensing deduction, there is always the depreciation allowance.

Recovering the cost of becoming ADA-compliant is far easier on the pocketbook than losing a lawsuit because a veterinary practice is not ADA compliant.

Mark E. Battersby is a financial consultant in Ardmore, Pa.