Medical Practice Tax Considerations for Electronic Medical Records

Posted on the 10 August 2012 by Ironcomet @Ironcomet

When I first started in business I worked for a large accounting firm.  Although I left that industry many years ago, I still keep an eye on accounting principles and techniques to help our customers in these areas.  I have compiled an overview of tax considerations related to Electronic Medical Records or EMRs.

A medical practice is allowed to depreciate or “write-off” their investment in property used in their business over a period of time which is generally the property’s useful life.  Methods of calculating and determining the deduction are described in Internal Revenue Code Section 168.

Components of an EMR System

Generally an EMR system has 4 components:

Software  This is often the most significant cost component of the EMR system.  Software in this context is considered to be a proprietary and widely distributed application marketed by the developer or vendor.  It is normally not commissioned or developed for the user’s exclusive use.  Modifying or entering specific templates or processes does not convert a regular software package to a custom application.

Hardware  Most hardware components are the workstations, servers, switches, monitors, tablet PC’s, laptops, disk drives and most of the other necessities.  Shipping and installation costs are considered part of the cost of the hardware.  Other costs could include modifications of your office space to support the hardware.

Building Improvements  Modifications to a doctor’s office which is normally classified as leasehold improvements are considered as part of the equipment for tax purposes if the improvements support its operation.  This might include cabling, electrical wiring or even moving the air conditioner to make room for hardware.  The improvements must directly support and be made as a result of the EMR system.

Training Costs  These are typically included in the implementation of an EMR system and are probably the most important aspects.  Depending on the size of your staff, Training will include front desk, medical assistants, physicians and billing staff.

Computer hardware falls into the category designated as “5-year property”.  This means that a practice’s investment in hardware components of the EMR can be depreciated over the life of 5 years.  There is also an accelerated depreciation method known as the 200 percent declining balance method (IRS code-168(b)(1)(A) and (B).  This allows for rapid write-off of the cost of investment with most of the tax benefits occurring in earlier years.

Modifications to the building to support the EMR such as computer cooling systems, data equipment electrical systems, and cabling are considered to be “5 year property” and qualify normally in the 5 year period.

Bonus Depreciation in the First Year

If the EMR is acquired after December 31, 2007 and before January 1, 2013, the 5 year property and software will also qualify for additional first year “bonus depreciation” in addition to the normally allowed deductions.  Consult your tax professional for further information and ask about (IRS code – 168k).  Also under (IRS section 179) the hardware and software components of an EMR system could qualify for full expensing in the year placed in service.  That means that 100% of the cost of the EMR could be written off in that year.  The maximum amount that can be expensed for 2012 is $125,000 and after 2012 the limit drops down to $25,000.

Fortunately many states also provide grants and tax incentives to businesses who take the initiative to upgrade technology and workers’ skills.  Consult your tax advisor or state department of revenue to determine which incentives are available.

Iron Comet is not a tax advisor, attorney, or CPA and this should not be considered legal or tax advice.  Please consult your accountant to verify the information to determine how your business can benefit from this information.

Iron Comet Consulting is a Mckesson Platinum certified reseller, medical IT firm and medical billing service based in Stockbridge, Georgia. Our products combine the clinical with the financial to improve workflow and revenue capture. Mckesson’s Medisoft Clinical is a complete physician practice optimization solution. For more information, please visit


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