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Listen to our client Trey Crawford & Pete Davison of Advanced Financial Services on the Pharmacy Podcast.
RxSafe 1800 Can Transform Your Pharmacy
Many of our clients have been able to take advantage of the IRS Section 179 tax deduction with the RxSafe 1800 system. Watch Pete Davison of Advanced Financial Services describe some of the basic concepts of this deduction in the 4-minute video above.
For a deeper dive, listen to Pete Davison and Trey Crawford, an RxSafe client discuss the financial benefits Trey received with Section 179 on Episode #476 of the Pharmacy Podcast Show (24 minutes). Or, take 15 seconds to fill out the form above, and an RxSafe team member will contact you to set up a convenient time to discuss.
The RxSafe 1800 system:
- Lowers FTE Hours by 19%
- Eliminates thefts and diversion
- Allows for less on-hand inventory
- Provides 100% accuracy CII audit results
Pharmacy Podcast Episode #476 - Click here to read the transcript
Pharmacy Podcast Network – Taking Full Advantage of the Section 179 Tax Deduction
Todd Eury: Welcome to the pharmacy podcast show. You’re listening to the first and only podcast dedicated to the business of pharmacy. You can find all of our episodes at Pharmacypodcast.com
Trey Crawford: Hello, I’m Trey Crawford, owner and operator of Diket Professional Drugs in Laurel, Mississippi. You’re listening to The Pharmacy Podcast.
Todd Eury: Hey, welcome to the pharmacy podcast network. This is your host and founder Todd Eury. Excited today because I’m bringing some intelligence to the pharmacy podcast that we really haven’t talked about in years. Shame on us for not really jumping on this. There’s so many of you who are pharmacy owners that listen to this show, that send us tweets, send us emails about different things that you appreciate about the podcast; thank you so much for that. What we aren’t bringing to the table that we should bring more of is some of this business intelligence. Not necessary being a pharmacist pharmacy owner, but just being a small business owner, and how important that is to understand different facets of business, different facets of marketing, possibly even some employee issues.
But today, we’re going to talk about something that, the scope might seem boring to you, but you’ve got to listen up because of the tremendous amount of benefit, and when it comes down to money, that’s certainly not boring to any of us, because it helps to fuel our businesses, our employees and our communities. Today we’re going to talk about Section 179 of the IRS tax code, what that means to you as a business owner. I’m excited to have two pharmacy professional industry people who really understand this, One on the financial side, one on the pharmacy ownership side. First of all, Peter Davison. He is an employee and executive at Advantage Financial Services. And Trey Crawford, who’s with Diket Professional Drugs. Welcome to The Pharmacy Podcast, gentlemen.
Trey Crawford: Thank you so much, glad to be here.
Peter Davison: As well.
Todd Eury: So like I said, boring stuff, but pretty important stuff. So I’m going to start out with Trey. Trey, you’re a pharmacy owner. I want you to explain a little bit about your pharmacy, where it’s located, who you’re servicing, any long term care, any specialty, any compounding. Give us the scope and then let’s dig into this Section 179 stuff.
Trey Crawford: Certainly. As I said earlier, I’m from Laurel, Mississippi, I own Diket professional drugs. I’ve been here for about 20 years but I’ve owned the store for 11 now. We started off very small. We were in an 1100 square foot store for a long time. When we were there we grew and grew and grew to the point where we could just no longer benefit our patients or our employees because we were so small. But we were doing a lot of prescriptions, so I started looking for another place to go about three years ago. Found a place, and that’s currently where we are now. We started off with five employees 11 years ago, and now we’re up to 21 at this point. We’re just the average ordinary retail pharmacy. We do some compounding. We really don’t do a lot of stuff for insurance. We do a good number of prescriptions. We do have some automation. We have a Parata Max and RxSafe. And we have the double tower RxSafe.
But that’s pretty much what we are, what we do. We specialize in helping people. That’s what we do, what we’re here for. We also specialize in sync. We try to do as many sync patients as we can. We do an average job. We don’t do a great job. Right now we’re between six and 700 patients on the sync side. Our goal is to get to about 50 percent for what we do from sync. And the automation that we have, it really does help us in what we’re trying to do, trying to accomplish. I know that what we’re talking about today is the Section 179. I don’t think I would have been able to have the automation and have the efficiencies that we have today if it were not for 179.
Todd Eury: That’s interesting. I also like the fact how you are really positioned in a good location. Real estate people always say location, location, location. You’re right off of a major interstate, 59. You’re also close to South Central Regional Medical Center. Tell us a little bit about access to your pharmacy and how important that is to your business.
Trey Crawford: Well it’s vitally important. As you said, I’m right off the interstate, and that’s important, but what’s more important is the area in which I’m in. We have medical facilities all around us. I could walk outside and spit on doctors, which is a big deal, to be honest with you. We probably have 25 to 30 doctors within three blocks of where we are. Also the hospital is basically right across the street from us, so we’re available for anybody that does leave the doctor, and they get to see us every time they drive by and go to the doctor, so that’s a big part of what we do is location.
Todd Eury: I’m very interested in talking about RxSafe and we’ve done several podcasts with them to really pull out some of the specialty and efficiency and quality that they present to a pharmacy ownership team. I’ve been impressed with their organization’s growth, as well as their commitment to pharmacy in different sectors, specialty, long term care, community obviously. However if you can’t buy this stuff, if you can’t leverage the technology, if you can’t get it into your business that is being attacked by DIR fees and PBMs, crazy Rubik’s cube like formulas of getting paid. Gut if you can’t get cashflow coming in and you can’t keep the lights on, then it’s all for nothing because you’re not going to be able to support your employees or more importantly your patients. So I need to bring in Mr. Peter Davison. Peter, tell us the advantages of Section 179. What does this really mean for a small business owner, and what are the greatest advantages of the tax policy?
Peter Davison: Well the first thing I would share with all of you is that Section 179 is nothing new with regards to the IRS tax code, but something that you should on a regular basis contact your tax advisor and make sure that they’re keeping up to date with what’s available to you. Section 179 is really an accelerated depreciation benefit for the acquisition of personal property that can include technology such as the RxSafe or certain software. And it can be used as a means of reducing your income by accelerating the depreciation benefits. In essence you’ll get the benefit of tax savings on what’s due to Uncle Sam at the end of the year, and then subsequently it should have a positive impact on your future quarterly estimates for the next fiscal year.
The law as it currently exists was signed into permanent law at the end of the Obama administration after several years of going to the last, what I’ll call the eleventh hour week or two before the end of the year to get passed, but now it is actually in permanent law, so you should be able to sit down with your tax advisor and get some really good ideas as to how you can benefit this and how it can impact positively your cashflow.
Todd Eury: Trey, you’ve been a pharmacy owner for how long now?
Trey Crawford: 11 years.
Todd Eury: So tell the listeners and other pharmacy owners who are listening to this show, kind of give us an idea, before you understood 179 and leveraged it, and then after, what kind of income difference, what kind of spending difference and capital difference did that make for your small business?
Trey Crawford: Well it makes a pile of difference to be quite honest with you. If you just look at it at its face value, if you look at the robots, and originally I’ll tell you I brought a Script Pro years ago, like 2008 or something like that, and I was looking to buy, and this 179 came up. And you said it a few minutes ago Peter, this is now permanent. It’s not something that they have to reapprove every year. That time they did have to reapprove it, I’m thinking. I believe at the time it was $250,000 and they increased that to $500,000. You may correct me if I’m wrong. But I know when I was looking at buying the Script Pro at that time, I was looking for a way to do it and just didn’t think I could afford it. But when you really delve into it and look at the numbers and see exactly how much it’s going to save you versus how much it’s going to help you in the workflow situation, it’s unbelievable not to buy it to be quite honest with you.
If you’re looking at $200,000, and I’m sure that Peter’s going to go into this a little bit more, but at the time this was a $200,000 purchase. I didn’t just have $200,000 laying around to do this. So what I did was finance that $200,000 through a company at the time, but then you’re able to take the $200,000 that you’re paying back over a 5 to 10 year period and write the whole amount off this year, and you can imagine what happened. You take $200,000 off your adjusted gross income, and you’re looking at probably $70,000 in tax savings that year. Well that’s $70,000 that you can do something with. That goes right into your pocket. That doesn’t go into your pocket, but it’s something that you don’t have to pay in April to the federal government.
Todd Eury: So Peter, try to clarify that for us, because I’ve heard about depreciation on software, equipment, even automobiles for example for small businesses. And it’s very foggy to me. It’s hard for me to understand. So I’m sure there’s other listeners that don’t really get it, so can you kind of talk to us about first year, second year, third year, and so on?
Peter Davison: Sure. When it comes to depreciating equipment, software and assets, everything has an anticipated useful life. So software might be three years, technology equipment might be five years, automobiles might be seven. When it comes to depreciation benefits, most accountants will look at that and say, what we’ll do is for instance on technology we’ll take 20 percent a year, and we’ll depreciate that asset down to a zero value over five years. What Trey experienced or what he shared with everybody is that he took that $200,000 using Section 179 and took it all in the first year, because the limits at that point in time were roughly $200,000, and he was correct in the fact that the law now states up to $500,000. So what that means is you can invest in software, personal property, technology, perhaps autos. You need to talk with your accountant because automobiles are a unique animal when it comes to depreciation benefits.
But what you can do is accelerate that so that your current year’s income is reduce, potentially as Trey did up to $200,000. What you can’t do is put yourself in a position where you have a tax loss carry forward or reduce your income past zero. But you can certainly reduce it down to zero in most instances. And what that means is if you’re in Trey’s example, if he’s in a 35 percent tax bracket and he gets $200,000, 35 percent of $200,000 is $70,000 that he doesn’t have to pay Uncle Sam in the fall. The nice part of that is while as a small business owner making quarterly estimates, come June, September, again in January and then again in April, all of those estimates can be reduced as well, so your cashflow impact could potentially be 12 to 15 months in the benefit of Section 179.
What’s even more attractive with that, now that it is permanent law, is actually you could plan to do that again next year and the year after that and the year after that. So as you look at how do you improve the efficiencies and profitability and services to your patients, investing in technology and software to make you more efficient, more accurate, have all the benefits of getting more face time with your customers, with the bodies that you are employing, all of these things pan into one experience at the end of the day. Improved cashflow and better customer experience, which I think something that we all look to do on a regular basis.
Todd Eury: So Peter, there’s a timing thing to this. You’re needing to really look out if you’re on the edge in order to invest in an RxSafe technology platform, what’s the timing aspect of this? What if my company’s fiscal year starts June 30 versus the first of the year? How does that all play into it?
Peter Davison: When it comes to the timing of Section 179, it gets into what have you invested in and put in use during the current fiscal year? Now there’s some gray areas here that some accountants will say that you can do certain things as long as it’s put in useful life, but the general anticipation is that if you put equipment, hardware, software into your business and it is installed and operational, then you can take advantage of Section 179. So when it comes to timing, as long as it’s in this fiscal year, whether it be a June 30 year end or a December 31 year end, take delivery, put it into use, you can certainly finance it as trade debt and pay over time, which is where the lease and financing side of it comes in, so that really you could have no out of pocket between now and potentially tax time in April, or have very limited out of pocket in investing in this, and still get the Section 179. But timing is a very important thing, because technically the rules are that you’re supposed to have taken delivery and put the product in use.
Trey Crawford: Peter, can I ask you a question? This is Trey, by the way.
Peter Davison: Yes.
Trey Crawford: I’m deciding right now, to be quite honest with you, whether to buy another piece of equipment as we speak, and you said just a few minutes ago it didn’t really matter if it was leased or if it was bought, financed over time or just paid cash for. I was under the impression that on a lease that you couldn’t use the 179. Could you explain that a little bit just to me? And the listeners may enjoy that as well.
Todd Eury: Great question, Trey.
Peter Davison: Tremendous question, and I will share with all of you, there’s a definition of lease. Usually there’s two sides of leasing. One is what’s called a capital lease where you have a dollar purchase option or a fixed balloon, or some end of term transfer of ownership program that is stated and is nominal. The other is what you would consider more of an automobile lease. It’s called a true lease or a fair market value transaction. The fair market value transaction, the leasing company retains title and the end user, your company Trey, has the option to buy but not the obligation. And so when it comes to taking advantage of Section 179 and depreciation, it depends upon what type of lease you’re contracting. If it’s a lease with intent to own, dollar purchase option or some fixed balloon, you’re entitled to the depreciation benefits. If it’s a fair market value transaction, you probably need to understand what the nature of that fair market value transaction is, whether the residual value is nominal, and whether the finance company is going to depreciate those assets. I would share with you and the listeners that in most instances on fair market value transactions the depreciation benefits will remain with the lessor.
Trey Crawford: Gotcha. Thank you so much.
Todd Eury: Excellent question. Want to mention to the listeners. Reach out to the RxSafe team if you’re interested in new technology because these guys can get you in touch with Peter and other organizations that might be right in your community, just to give you that tax expertise and understanding how to leverage and move forward. Trey, my next question is for you. As a pharmacy owner, doesn’t the things that Peter’s sharing with us make you think hey, I should put myself almost on an innovation schedule, knowing that every two to three years I could literally upgrade through leasing my technology to ensure that my organization is top notch and quality and driving efficiency? Which actually kind of trickles down to better patient care. Does that start making your gears turn?
Trey Crawford: No, yeah, and that’s something we tried to do for a long time. Something that I’ve gained a knowledge of over the past 20 minutes during this podcast is, and I’ve never thought about in these terms, but using 179 is not just a one time thing, but using it as a tax strategy, just like you’re talking about. You say every two to three years, I would say every year. Obviously we’re in a rapidly changing industry, and it changes so quick we can’t keep up with it. But the one thing you’re going to have to do is you’re going to have to find ways to be more efficient and be better at what you do. There’s so many things that are being thrown at us today that weren’t thrown at us five years ago. We have to be innovative. You have to put money aside to not just increase your business but increase your efficiency. We have to be better at what we do, and machines or computers or whatever the case may be, is one way to get that done. And you talk a lot about RxSafe. RxSafe has been a life changer for us here and the way we do things, and again if it weren’t for 179, we wouldn’t have even thought about purchasing it.
Todd Eury: It’s interesting that you say that, because part of their core values is they say that they believe in challenging conventional wisdom and upending the status quo and developing technology that will define the future of retail pharmacy industry, creating this comprehensive long term care solutions for customers and to expand upon vision, innovation, and out of the box thinking. They’re practicing what they’re preaching, including helping their patients, which is their customers find the way to implement this technology from a financial perspective. Peter, what’s the rush between now and December 31? If I’m listening to the show and I’m like wow, I’ve been really thinking about purchasing an RxSafe for example, or a new pharmacy management system, it’s time to act, isn’t it?
Peter Davison: It is time to act. I was on yesterday with RxSafe working on another deal that was approved and getting documented, and my understanding is that their install team is completely booking the last week in November and early December. So timing is of the essence. Doesn’t mean that they don’t have space available or won’t increase the number of bodies that they have to do installs, which I’m sure is if there’s need there’s going to be a way to get it done. From a standpoint of urgency, I would tell you never make a bad decision just to get tax savings. But if you’re looking at improving the efficiencies of your pharmacy and you’re on the fence, do I do this now or do I wait till next year or next fall, there is a lot of consideration that should be done for doing it now, and here’s a couple of things.
One, in a general landscape, rates are only going to move one way. They’re going to go up for the time being. And so to move sooner rather than later, just from a pure interest rate standpoint makes good business sense. Number two is if the federal government in its right standing has its way there could be an income tax reduction, which means that right now you might be at the higher end of the spectrum and it might be worth considering moving sooner rather than later. From a timing standpoint, RxSafe generally can deliver within 30 to 90 days of signed contracts, so we still have time, but the urgency is upon all of us to try and make sure we’re making the right decisions for our business and have the prudent thought process of why we’re making those decisions.
Trey Crawford: Todd, let me add to that too, as a business owner and somebody who really does have to watch his pennies. I would never ever ever make a decision based just solely on, this is going to save me money. It has to be a decision that is in conjunction with saving me money over time, but it has to be where it’s going to improve the efficiency of your pharmacy. I said a few minutes ago we’re in a rapidly evolving industry and we are, but anybody that believes that we’re still in the account based kind of stuff, it’s no longer our industry anymore. You have to be innovative. You have to be on the cutting edge of what’s going on as far as efficiency and being able to help your patients. You have to find a way to get them in and out of here quicker. Automation is a way. RxSafe is a great way to do it. There are other companies out that do it as well. But again I would say, don’t just make this decision based on, oh it’s going to save me X number of dollars this year. It has to make sense for you, and that’s just my two bits that I’d like to add for that.
Todd Eury: Trey that’s a good point. There’s different facets of decision making, different pieces of the puzzle. There’s a Rubik’s cube of being a business owner, and it’s got to line up to really make sense, and if the tax benefit is an additional benefit, then take advantage of it. Make yourself a four square, the old fashioned four square decision making when you lay that piece of blank white paper on the table, and you put the different decision factors in place, the pros and cons, and just keep it simple. But reach out to your tax professionals and ask lots of questions. Reach out to the RxSafe team. I just want to thank Bill Holmes and Brian Kichler, part of the RxSafe family for bringing content to the pharmacy podcast network like this. Really useful information for a pharmacy owner. I also want to thank Peter Davison for being on. Thank you so much from Advantage Financial Services for the intelligence. Most of all Mr. Trey Crawford, you are a pharmacy owner, you’re in the trenches right now. It’s your patients, most important the lives that you serve. I want to thank you for serving those lives and being a pharmacy owner.
Trey Crawford: Thank you so much.
Peter Davison: Thank you.
Todd Eury: You’re listening to the pharmacy podcast network brought to you by RxSafe. Please check them out at Rxsafe.com. We thank you for listening. We hope you enjoyed another episode of the pharmacy podcast show. Be sure to subscribe to the show and send us a voice message with your ideas and comments from our contact section on the website.
I would absolutely purchase the RxSafe again. It does exactly what I was told it would do, and the support has been phenomenal!
Controlled substance security is greatly enhanced with the machine. I was broken into 3 weeks ago and they didn’t get anything out of the RxSafe.
The RxSafe has provided us with a myriad of benefits – it’s allowed us to reassign employees, save space in the pharmacy and made it faster and more accurate to fill scripts.
Our RxSafe automation freed up space, time and people in our pharmacy so we could do other things.
The accuracy that the RxSafe provides has improved my peace of mind. Now I don’t have to worry about errors and I feel secure knowing that what is dispensed is 100% correct.