Readers of this blog know that Internal Revenue Service (IRS) Section 179 can save pharmacy owners from owing a large sum to Uncle Sam next year, if they invest in pharmacy automation equipment within the remaining weeks of 2023.
Did you have a profitable year this year? Worried about your tax situation? Still on the fence about how to take full advantage of Sec. 179?
Read on as your fellow pharmacy owners – and a CPA working in the industry – explain how to reap the tax benefits of Section 179. The following is excerpted from a recent podcast/webinar hosted by RxSafe and Todd Eury, publisher of the Pharmacy Podcast Network, entitled Maximizing Pharmacy Profits: The Power of Utilizing Section 179.
Panel participants included:
- Lisa Kocian, RPh, Gibson Pharmacy, Texas
- Adam Robinson, PharmD, Save Rite Drugs, Kentucky
- Scotty Sykes, CPA, Sykes & Company
- Pete Davison, Advantage Financial Services
- Todd Eury, Pharmacy Podcast Network (moderator)
Click above to watch the entire webinar.
Todd Eury: Hey there, independent community pharmacy owners. Welcome to today's webinar. We're talking about maximizing pharmacy profits, the power of utilizing Section 179. This has become an annual event for us, where we look forward to getting ready for that last quarter, that last surge for the end of year, and making some very important decisions about buying larger items to maximize tax savings. Today we’re talking about how this is changing, and how it’s going to impact our community pharmacy businesses getting ready for 2024, which we all know is, going to be a little bit of a stressful year in the beginning. Dr. Robinson, it is so good to see you again. I want to welcome you to the webinar today. How are you?
Adam Robinson, PharmD: Thanks, I'm doing good.
Todd: Scotty Sykes, you are one of my favorites at these panels. I got to see you at the NCPA. You're always bringing some very valuable knowledge to our community pharmacy owners. So thank you for being here today, Scotty.
Scotty Sykes, CPA: Thanks for having me, Todd. Good to see you again and hear your voice again.
Todd: Absolutely. Oh, my goodness, Lisa Kocian, I haven't met you and haven't had done a panel together, so I always want our newest members of our panels to just give a shout out and let us know what pharmacy you're running, where you're located and obviously we'll come back to you for additional questions today. But, Lisa, tell us about yourself.
Lisa Kocian, RPh: Hi, I'm Lisa Kocian. I'm with Gibson pharmacy in Athens, Texas. We're just outside of Dallas, and I've got this pharmacy and 3 others. My husband and I run them. I actually grew up in the pharmacy that I'm in, and bought it from my father many years ago now, but glad to be here.
Todd: It's good to see you. All right! And I already know this guy: Pete Davison with Advantage Financial Services. It's so good to have you here.
Pete Davison: Hello, Todd. And it's very nice to see you.
Todd: Thank you. I'm going to open up for our participants, as well as people that are listening to the podcast. This is an important time. This is getting ready for our New Year. But there are things that we can do right now before the close of a year to really maximize on cash flow and taking advantage of tax savings to prepare us for all kinds of things, including the “DIR Fee Apocalypse” for 2024. And we know that it sounds like it might be another confusing clause, another tax code that we have to figure out. But that's why we put these panels together, just give us some balance and some mix between pharmacy owners and people that concentrate on taxes, my least favorite subject. So I'm going to kick things off just with Scotty and Pete. First of all, I'm going to start with Scotty. Give us a brief overview, just in case someone's listening to the podcast or attending today's webinar… just a brief overview of the IRS Section 179, and actually how it works.
Scotty: Yeah. So thanks, Todd, so as you're getting towards the end of the year here, tax planning should be a vital component of your strategy going into the DIR fee, I like to call it a cliff. One key tax planning strategy is equipment purchases and capital equipment purchases like robots, compliance packaging things like that. And with that, the IRS and Congress have, within the tax law, some aggressive write-off opportunities of that equipment to spur investment into the economy. And so Section 179 is one of those provisions of the tax code to allow pharmacies to write off up to 100% of the equipment for the pharmacy. So that's Section 179 in a nutshell there, Todd.
Todd: Thank you. I appreciate that you always bring us this concise explanation, and it helps to helps project what we can do right now in order to start using the technology using the automation and then be ready for the New Year, but then get all of that tax advantage upfront for the 2023 tax period. Pete, I want to bring you into this conversation. What are the main benefits pharmacies can gain by leveraging section 179 deductions?
Pete: Great question. The first thing that I would share is to coincide with Scotty’s said, is that they get the benefit of the technology that they're acquiring. So the first thing that anybody should always do, is look at the technologies I'm acquiring. Where do I need them? Do they have pertinence in my business? Section 179 allows us, Scotty said, up to a 100% tax write off, which impacts their taxable income and what they have to pay out to the IRS come April. And if my understanding of it is correct, if you have lower income tax for 2023, using Section 179, could also have positive impacts on your quarterly estimates the following year.
Scotty: Exactly. I'll just expand on that. So historically, normally, equipment is amortized or written off, depreciated over a 5, 7, 15 year period of time. Section 179, for example, like we're talking here allows you to speed that up, maybe in one year. And you can be even more flexible with it, 2 years or 3 years. But a lot of people use it in one year. So it allows you to get that full deduction in one year, just to clarify that point there for the viewers out there.
"...as you're getting towards the end of the year here, tax planning should be a vital component of your strategy going into the DIR fee, I like to call it a cliff. One key tax planning strategy is equipment purchases and capital equipment purchases like robots, compliance packaging...the IRS and Congress have, within the tax law, some aggressive write-off opportunities of that equipment to spur investment into the economy...Section 179 is one of those provisions of the tax code to allow pharmacies to write off up to 100% of the equipment for the pharmacy."
- Scotty Sykes, CPA, Sykes & Company
Todd: Yep. So I think of coaches, I think of trainers, I think of consultants that are all poised to give us the best information we have to be very choosy about who those people are inside pharmacy and outside pharmacy, including people like marriage counselors or people helping you to train to get ready for a marathon. Right? And that's my Pete, and that's my Scotty. You guys are sitting there ready to go. But the athletes in the room, the people that are actually out there doing it is Lisa and Adam. So that's where the rubber hits the road for us. So I want to just kick off asking Lisa first, can you tell us how you effectively utilized Section 179 and what the impact was on your financial bottom line?
Lisa: When they contacted me to talk about this, I very honestly said, I do not even claim to understand all of my tax return. And really, what I can tell you is, and we've had our RxSafe and our RapidPakRx for many years now. But we did get refunds in that tax year, and so it does help with cash flow. I can't tell you the specifics of how it was applied. I know pharmacy, not the financial part of it, but I went back and looked at our returns, and we did get refunds, because our estimated taxes were higher, and so it did help with cash flow in the following year.
Todd: Adam, you and I have talked about this subject before. You've been on one of these panels and in the past to really opened up about being a pharmacy owner and knowing that this is impacting your business directly in your cash flow. Expand upon what Lisa said as a pharmacy owner. What are the main benefits pharmacies can gain by leveraging the 179 deduction?
Adam: I look at Sec. 179 as like a trump card. Right? So how is your year going? Hopefully your accountant is really talking to you. You kind of see the picture going in towards the end of the year. And you know, “Hey, we we've been kicking butt this year, and kicking butt usually means I'm going to have some nice hefty tax liability, maybe.” And then so that's a good time to ask, “Hey, I do need some technology. And I can utilize that Sec. 179.” I mean, we're not talking about $10,000, $20,000. We're talking about a lot of money, and that we can dramatically decrease our numbers at the end of the year, which exactly what Lisa was talking about, that corresponds to less tax burden. And then it also corresponds to lower quarterly tax payments. So the less you have on that, the more you have on your cash flow. And it just really, really helps.
Scotty: There's something called bonus depreciation. Section 168 kind of doesn’t get any attention, but it's very similar to Section 179. I also want to point out for the viewer those two different provisions. They have very different advantages and disadvantages. For instance, with 168, you can create a loss. You can write that off. Let's just say you buy a $100,000 piece of equipment, and you have zero net income that year, you can create a hundred $100,000 net loss to offset other income, maybe your salary, and get a refund, that way. With 179, you can't create losses necessarily. So you have some limits there. But, Adam, you do have that flexibility, though between 179, or 168 to say, “All right, I'm only going to depreciate 50% of this this year and write off the rest over X number of years. You do have that flexibility. But there are some limitations in addition to that. You need to understand your state. Does state follow 179, or do they follow 168, or vice versa, so that can come into play. But hopefully, the CPAs are handling that for you guys on the back end. But you should be asking that question to your CPA.
Todd: So there's an article that came out in Inc Magazine that covers this. This just came out not even a couple of weeks ago. It says, “Don't leave money on the table. This small business tax deduction is more important than ever. Small businesses: the Section 179 deduction can impact the bottom line.” I want to ask you, Lisa. When you decide to buy a large piece of equipment laying out a bunch of money, and you have this type of tax savings, was there a timing element to this for you? Was this something that you did purchase at the beginning of the year? Or did you purposely purchase it more towards the end of the year, in order to get that maximum savings for the entire year, with regards to tax savings?
Lisa: Well, we actually were on the waiting list for the RxSafe, because it was so new. And so we were praying that it would come in before the end of the year, and so we did make it into that year, but it was pretty close. So yes, I think we felt like that was a good year to take that deduction. And so we were, at that point, kind of banking on it. So yes, we strategize. I don't know that we were as “on it” as maybe our CPA was, but we knew that we needed to get it done before the 31st of December.
Scotty: So that’s a very important point, it has to be put into use. That's very important to get that deduction.
Todd: Yes, I wanted to say, what's the activation to really take advantage of the entire 179 deduction? And, Scotty, you described this to us in a previous discussion around this. And you said putting it into use is an important part of this. I do have a question for Pete. I want to kind of expand and dig into the 179 ability. So if we're applying this to pharmacy, specifically looking to invest in automation, or other high cost equipment. How does that apply specifically to pharmacy? But I'm talking about vehicles, I'm talking about the RapidPakRx. Maybe some software. But is there a wider net of purchases that the pharmacy owners listening right now, should be paying attention to?
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Pete: So my understanding, there's quite a broad list of items that can be used for Section 179. Obviously, compliance packaging, pharmacy, automation inventory control. But the list is much greater. The way I would probably describe it is personal property as a depreciable asset. And so pharmacies look at depreciable assets or personal property that could be everything from furniture, fixture, and equipment to software licensing potentially could fit into there potentially depending upon how Scotty or their accountants look at it. Things like compounding rooms, and some of the equipment that goes into there could be depreciated. Where you end up probably not being able to depreciate, is actually on what I call services. So if you're having an accountant come in and if they're charging you next year, or if you have an IT firm come in, and they're charging you next year, you could ask them to put it on their books this year, but it's really not Section 179. It's just an additional expense.
Todd: Adam. I'm wondering when you took advantage of your Sec. 179 deduction for pharmacy owners listening. I think of getting the most out of an investment as quickly as possible. So with marketing and putting money into the announcement of the technology, the impact of adherence packaging, the impact to communications with physicians. What did you do with that money? And should pharmacy owners be thinking, I know I'm going to save an additional $150,000, whatever the price tag is. Do I put some of that money into leapfrogging and getting out the gate faster in the New year with this new technology by putting it into marketing the technology that I just invested in?
Adam: Yeah, you gotta be smart when you're buying a $200,000 piece of equipment. Right? You can't just go, “I want it.” Some people have; it's not the best idea. I always try to calculate my return on investment. Is this something I can do right now? Do I have the capacity to handle this? We were very fortunate. RxSafe has a great marketing team to help with the purchasing of their equipment, so when we bought the RapidPakRx we were ready for Sec. 179, I knew what I was going to be able to deduct, and they helped us move forward to get on top of that return on investment. And it's a learning curve, just like with every piece of equipment. There's always a learning curve. You’ve got something new coming into the pharmacy. How do you promote it? What do you do? But we were fortunate to get a good company that really helped us figure that out. So we're ready. We knew we were going to do, and we were kind of hoping it would get in before the end of the year, but I had my ducks in a row to jump on that when it did come in, and knowing what we were going to do with it. So yeah, I knew that I had some money to play with in the marketing realm, because of the 179 deduction.
Todd: Scotty, I can almost hear your voice answering this question, because I've talked to you enough to pick up your vibe, and you're a proactive person, which is good. You're like my dentist, saying, “Did you get your two cleanings for the year, or is there tartar buildup in your in your finances? I got tartar all over my finances, by the way, Scotty, so I don't want to talk to you about that. But what should pharmacy owners keep in mind to ensure they don't miss out on utilizing the Section 179 benefit?
Scotty: Well, if you’ve heard us talk at any other event, you know where we stand. Fundamental accounting in pharmacy is vital, and you have to have that to be able to proactively tax plan to take advantage of Sec. 179, or the Sec. 168 option out there. So that fundamental accounting is crucial piece, because if you don't have it, you don't know where you stand. You don't know what April 15th is going to look like, you can't plan and prepare. You don't know if you need this piece of equipment, or not, from a tax perspective. Of course you should always be looking at equipment needs based on: do you actually need it? Not from a tax perspective. But still it's an important component. So going into the end of the year, if you don't have that fundamental accounting in place, you’ve got to get that done as soon as possible, and then start looking towards how you're going to be at the end of the year, and what options you have.
Pete: Todd, if you don't mind, I'd like to add one more thing to that, and I think that I've heard it from Lisa and Adam, and I know, Scotty has said it a couple of times. For pharmacy to take advantage of, Section 179, Scotty says it's got to be put into meaningful use. And I think one of the most important things that a pharmacy owner, if this is something they're looking at doing, is communicating with their accountant as soon as possible, and making sure that the equipment they're looking at can be ordered, built, delivered, and installed in a proper timeframe, because we're only two months from the end of the year.
"Let’s say a RapidPakRx is about $200,000. A tax savings at a 37% tax rate might equate out to about $70,000. We've got programs from acquisition financing that can defer the first payment up to 6 months. So, if you install in December the first payment is not due until June, but you can still write it off in December. For the second year, with payment terms out to 7 years, you can end up having as much as the first 28 payments paid for in your tax savings. ..you're going to get the benefit of the equipment, number one: that's the most important thing. But then you're also going to improve your cash flow because you're going to get the benefits of that equipment without having to pay for it. Then you get your tax savings in April... and you’ve gotten yourself ahead of the game from a cash flow standpoint. And with what everybody's anticipating to be an early 2024 problem, it’s a wonderful opportunity that does exist."
- Pete Davison, Advantage Financial Services
Scotty: Good point, Pete. Great point. I know you want to talk about the lease option, and you know, if you lease this, you don't pay for it. You're making capital lease payments on it, but you still get that advantage of that being a piece of equipment that you can deduct.
Todd: So, get my RapidPakRx, let’s say December 15th. It's in use before the end of the year. I'm leasing it. Now what? Pete, decipher that for us.
Pete: So the best way for me to describe this is, there's a million different ways to acquire a piece of equipment. There are two different types of leases: there's true leases, and capital leases, and for Section 179, you do have to make sure you're getting a capital lease, which is a transfer of ownership intent. There are other products, such as installment purchase agreements and equipment finance notes. They're all kind of the same. I can give you kind of an example of things that might make sense. Let’s say a RapidPakRx is about $200,000. A tax savings at a 37% tax rate might equate out to about $70,000. We've got programs from acquisition financing that can defer the first payment up to 6 months. So, if you install in December the first payment is not due until June, but you can still write it off in December. For the second year, with payment terms out to 7 years, you can end up having as much as the first 28 payments paid for in your tax savings. So you start looking at cash flow, and you're going to get the benefit of the equipment, number one: that's the most important thing. But then you're also going to improve your cash flow because you're going to get the benefits of that equipment without having to pay for it. Then you get your tax savings in April, and then you get your quarterly estimates coming up, and you’ve gotten yourself ahead of the game from a cash flow standpoint. And with what everybody's anticipating to be an early 2024 problem, it’s a wonderful opportunity that does exist. Number one: if you have the capacity, as Adam said before, to do this now.
Todd: Yep. Another thing that Adam mentioned was pulling the trigger on something that he really didn't have a plan for, but it was more of like an exciting buy. And there's nothing wrong with the excitement around adherence packaging. We know that it works. We know that it keeps people on their medications. It brings a lot of value to our patients, and of course it gives us an opportunity to grow our business. However, you need to have a plan. So I think of pitfalls… Lisa share with us. Anything that that that came up, where there's a direct contrast between leveraging the insights of your CPA and people like Scotty and Pete, and guiding us, versus just doing something on your own, and kind of like a contrast between the two outcomes?
Lisa: Well, we're planners, but I can see if you're at a trade show, and you start talking to the salespeople, and you get all excited about it. And you say, “Okay, let's do it.” And you get it in, and you don't have any idea what to do with it. It does take planning. You have to staff appropriately, and there are instances where maybe you would require less staff. I think we ended up kind of shifting staff. With the RapidPakRx, in particular, you have a separate workflow, and so you do have to plan for things. And so we were planners. We had done our research, and we had an idea of how we wanted to do it. I think, that probably lowering your service level in that time of transition might adversely affect your business temporarily. Hopefully you get things running smoothly and it doesn't hurt you long term. But rushing into something, I don't know. I think Adam said, some people have purchased these expensive pieces of equipment, and they just sit kinda like an exercise bike in the corner of your living room. You really have to utilize it in order to get the return on investment.
Todd: A good point. It's one of the best things said today: having a plan to utilize a piece of equipment and getting full benefit, not only the tax benefit but the outcome and impact on our patients’ health impact on marketing our services. You just laid out, Pete and Scotty, how expensive these pieces of equipment are. Adam, share with us pitfalls that you've experienced in in purchasing decisions that you might not have had as much planning involved in comparison to when you really came at it with a good plan in place.
Adam: Yeah, exactly what Lisa was talking about. Section 179 is there for you to take advantage of, if you're planning it out. I love what Pete was saying, using somebody else's money to make money. I love that; it's fun right? And so, I use Pete's money to buy one, and I'll offset the time that I had to pay, and so I really didn't have much invested, and got the 179 deduction. And then it really helped with cash flow. But in that time I was preparing what I needed to do. I have purchased some stuff before, smaller equipment, and I knew everybody said to use it, “Use this. It's awesome!” And I would buy it, and I didn't really know what to do. I didn't have the stuff in place for them to call and help set it up. And you're wasting money, right? So just like when we buy drugs, the theory is, don't buy more than a month's worth, because you’re actually going to end up losing money, because you’ll probably get it cheaper somewhere down the road, and so forth. So it's the same with equipment, except it's a lot more expensive. And so if you buy this, do your due diligence. Sit down, figure out if you really need to do it. Take advantage of what you can. Use somebody else's money for cash flow, benefit the best you can, and then when you do that, and you really have a plan in place, then your return on investment comes in, and it's and it's not so bad. And so I think Sec. 179, and we've used it a lot in the past, makes these purchases less scary. So I go into trade show. I have this great idea. I want to be an awesome pharmacist. I'm going to help my community. And this machine that I want is really going to help with that. But man! It's $200,000. That's a big number. And now everybody's scared to death with all the DIR, and poor cash flow and such. But you talk to your accountant, and you figure it out, and you're like, oh, you won't have a payment until next year. And then you get the machine and you're going to save. 70 grand on your taxes. So it's not as scary as it sounds to buy a $200,000 piece of equipment. So that's what we use it for. It's just it makes it easier to digest. And it really helps out our cash flow for sure.
Todd: I want to pick up on what Adam's saying, Scotty, and bring it back to you, and let's talk about leasing. For example, if Adam chose to defer lease payments to conserve cash flow, can he still utilize the Section 179?
Scotty: Yes, so as long as it's put into use in the current year, and you run a prescription through it, and it's a capital lease, you can take that depreciation. So yes. And just expanding on what Adam was saying. Your patients out there, they want this compliance packaging. This is what they want. And going into the end of the year, it makes it makes a good argument on whether this something you should be doing in your pharmacy. And there's a good chance it is, and you need to be doing it, and getting the tax benefits that go along with this. You know, depreciation rules can always change, so we'll have to see what happens next year and over the next several years, especially with the Tax Cuts and Jobs Act expiring. But overall, your patients want this compliance packaging.
Todd: So what Adam was describing and also based off of what Lisa was sharing, what's a lease payment on $200,000 over a lease term? 36 months, 24 months, 48 months. I can imagine what that payment was. So in theory, and I need Pete to correct on this. But if we are putting out money right now, and it's a lease, and I put out a $500 payment twice in November and December. It's in use. I get the full benefit. I literally just spent X number of dollars from a cash flow perspective. I just got a $200,000 tax write-off.
Pete: Yeah. And going back one more step, yes, you can write the whole thing off as long as put in meaningful use. A lot of the programs that we're running and see people doing, the most common ones are 6-month deferred first payments, or 3-month deferred, and then half payment for the first year, and it's all geared around some of the concerns over early 2024 cash flow. And so those are very common programs. So going back, you don't have to have a dime out of your pocket to get the benefit of one of these Section 179 programs, if you're using a lease with a deferred first payment and the longest that will go is up to 6 months’ time. So in essence you could get the $200,000 depreciation benefits, get the equipment in, and you wouldn't have a payment potentially until April, May, June of next year.
Click above to watch the entire webinar.
Todd: I'm seeing based on what Pete and Scotty have shared, that there are two sides of this. There's the spend. and then there's the savings, and there's kind of like a balance and ebb and flow to that, so it's really calculation, but it's also a timing issue. I mean, it's November. What's today? November 2nd. You may be hearing it in the future. It's time to make some decisions very quickly and reach out to Scotty, reach out to Pete and decide. How am I going to get this in place? How am I going to get it paid for? How am I going to get it implemented into my workflow? And how am I going to get it started? But you could phase it in. Adam, you and I have talked about how you phased in different strategies from marketing to technology, and you don't have to have to have all the answers in the next 60 days, per se. But you could start using it to get ready for the explosive growth that you could experience in 2024. Adam, talk to us about phasing in, edging into something and starting the utilization of your RapidPakRx, and making it full circle where, a year from the day that you started it, you're definitely doing better with the piece of equipment than you did on Day One.
Adam: So, always utilize the team that you're buying it from. I mean, if somebody's going to sell you a $200,000 piece of equipment, they're probably going to have some marketing strategies for you. So figure that piece out. Next is like Lisa was saying earlier: figure out your staffing. What is this actually going to take? You don't know that unless you go into somebody else's store and see them utilizing it. Or, you talk to somebody at a show, a friend. So ask whoever you're buying from for some contacts, right? So then you've got an idea of how to operate it. You’ve got an idea of some marketing tools, and start figuring out what you’ve got to do. Let your team know what you're doing. It's super easy to make marketing materials to educate your team, to educate your patients. So that's how I always approach everything. I do my R&D, right? I do my research and see what's going on. How do I do this? Is this even possible where I'm at? Maybe your pharmacy is too small. Maybe, you just don't have the room. Maybe you don't have the techs to do it. So you gotta figure that piece out and you always have to talk to somebody who has it, multiple people. And what do they like, what do they dislike? And then, once you have that in play, and you draw it out in your mind, you also have to realize that when it actually starts working, it's not going to work like how you thought it was going to. And you’ve got to be ready to adapt. So you adapt you figure it out. You figure out the problems and the issues, and you adjust, but you've already got all the good stuff in place right? You've got some patients coming to you. You’ve got some marketing material. You're out there speaking to your physicians. You're showing people what's going on. So yes, definitely phasing into it, because years ago we didn't do that. “Oh, let's buy this giant robot. They say it's awesome. And we don't have to hire two techs.” Well, that's not necessarily the case. You buy it. It comes in. You don't really have the workflow in place, and it becomes more of a headache than anything. So, take your time. And you know, it is the end of the year, but maybe it's not the right time to do it. You don't want to buy something on a whim, if you're not ready. That's the most important part. Never buy anything to save money on taxes. That's my rule of thumb, right? It's going to be awesome to save tax money, but don't buy only for that, because then you're spending money, and then, you're really wasting your money.
Todd: I know it's exactly what you mean. Have a plan for production, have a plan for benefit and for growth that just so happens to have an ‘extra’ benefit, that, in fact, is the tax benefit. Lead with your purpose. Scotty, I've asked you this question before, but it's come up in our questions from our from our audience, and that is: vehicles. I think of how important delivery is to our community, and this will increase. I want everyone on this webinar to listen to what I'm what I'm saying right now. Long term care services at home is a huge future growth opportunity for community pharmacy and adherence. Packaging plays into that, and delivery, aka delivery vehicle, is a very important part of access to medications for our people who are in their homes who don't want to go to an assisted living center. They don't want to go to long-term care. They want to continue using their community pharmacy. You do not want to lose that business, you want to service those people in their homes. Scotty, I want to buy a vehicle. It's November 2nd. I want to purchase the vehicle. I'm going to get it wrapped with a nice little, colorful thing that has the name of my pharmacy all over this thing, and I want to use it as marketing. I want to use it to transport medications to my patients. Talk to me about vehicles in Section 179.
Scotty: For vehicles in Sec. 179, you cannot do 100% write off in many instances. For vehicles greater than 6,000 pounds or SUVs, I believe the cap for 179 is $28,100, and the cap for vehicles less than that weight is around $12,000. So they are capped, vehicles are, but you could still get a pretty significant write off with those. I'll just say this one thing about vehicles. If you have vehicles at the pharmacy, you need to be keeping a mileage log of some sort. Because if you do get audited by the IRS, the first thing they're going to ask for is your mileage log. And if you have that, that's going to set the tone for the rest of the audit. So with vehicles, yes, there's some depreciation flexibility there. But keep a mileage log and keep that updated, because you'll want to have that, if someone ever comes knocking.
Todd: There are applications that can be folded into your vehicles that tie into your GPS systems that allow you track that all automatically, that pushes that back to a central system. So don't do it, willy nilly, like Adam said. Just like Lisa, be a planner. Lisa's a planner. Adam, you're a planner. I know you are a planner. I'm not a much of a financial planner, but I need to be.
Pete: Speaking of vehicles, if you if you're looking at a vehicle, most vehicle leases are not capital leases, they're true leases. So they would not get the depreciation benefits. So if you're looking at vehicles and you want a finance plan, you can, but it would be a finance-to-own. Most car dealerships or auto dealerships can do those types of programs, so just be cognizant of that, if you're looking at automobile leases.
Scotty: That's a good point. I just want to touch on that real quick, because I get that question quite a bit. Should I lease, or should I buy the vehicle outright? Usually, it's going to be, purchase the vehicle, finance it if you want, and then get that depreciation deduction. Otherwise, you're just paying a ‘rent payment’ of X dollars a month, and you're just not going to see that big bang for your buck there. It's just an expense at that point.
Todd: Alright. So I want to kick it back to Lisa and just tap into being a pharmacy owner and understanding what you're up against for 2024. How are you maximizing your RapidPakRx to get you over this first quarter hump of 2024, with the DIR fee change coming. I want to get, from a pharmacy owner’s perspective, your input on this. I know we're all a little bit nervous. I'm a podcaster. I don't even own a pharmacy. I'm still nervous. What can you share with our listeners?
Lisa: I think the way we're leveraging the RapidPakRx is we're staying pretty slim as far as inventory and workforce. We can order just in time, because we know those expensive drugs, we're going to be filling them on a certain day. We don't have to keep them sitting on our shelf, so we can keep our inventory slim. We've got our workflow down so that we know when our busy times are, and we can schedule appropriately. And so we're just trying to stay lean on the expense side. Obviously, we market and we try to grow the business. And we're trying to convert people that are not in the strip packager into the strip packager. And so we're always trying to move people over to that to increase their adherence, not only for their benefit, but for our benefit. It's a mutual benefit, because it does make our workflow easier. And so that's probably how we're utilizing it the most, just keeping our expenses under control while we're waiting for whatever's going to happen.
Todd: Adam, I’m thinking of my daily routine, which has changed over the last year. I'm putting more efforts in. I’m 51 years old, so I'm starting to pay attention a little bit more into my health. So I get on my wife's peloton at least 5 days a week where I'm walking. And I'm like, “All right, I'm going to do a 9% incline. I'm going to stay at a 3.3 pace, and try to keep up.” And I think of business health, and the diligence of doing something small where you're not going to see the impact right away. But you're going to see it a year later or two years later. What type of decisions have you made in preparation for what we're all going to experience with DIR fees beginning in the first quarter?
Adam: Well, the first thing is: I save money, so every now and then I’d grab some money in the bank account, if I had some, and I'd stash it away. So I'm saving money for that. To go back with what Lisa was saying, we're really lean on our inventory. We have a very robust adherence program, so that allows us to really do that. And then we've been doing what you were talking about, medical at home. That's what we're really utilizing, our RapidPakRx, for our medical at home patients. So we're trying to build that portfolio up, because there are no DIR fees with that. So I run a report every month, in my system, and it allows me to estimate what my DIR fees would be. And I know with my medical at home patients I don't have to pay that amount of money, so we're trying to convert as many patients over to that as possible. So that's what we've been focusing on a lot this year, trying to get as lean as we can. So that's been our preparation this year for sure. We don't even know how they're really going to account for it at the cash register yet. And so if we can get over that hump, that first quarter, into the second quarter, and things are doing okay, then we can really start making headway and working on some other ideas that we have for the future.
Todd: I want to talk about ecosystem macroeconomics. You put pressure on something, it impacts something else. You do something over here, it impacts your business over there, your reputation in the market, your reputation in your community as a community pharmacy owner. There's an ecosystem that you have to pay attention to. Pete and Scotty are there to guide. But there's still this this ebb and flow. If you're spending money in the community, you're investing in your staffing, you're investing in marketing and communications with your physicians, it's an ecosystem. And I want everyone listening to this podcast to reach out to Pete, to reach out to Scotty. Ask questions about best positioning you for the end of year, and in your purchasing decisions. RxSafe plays in that ecosystem. They don't expect it to be a one-and-done situation. They have meticulously designed marketing plans to make you, as a pharmacy owner, as effective as possible with shifting into an adherence marketing opportunity, and adherence packaging for long term care at home. So once again, this is an ecosystem. There are many parts to this. You're not here alone to do this alone, and RxSafe will guide you and plug you into other people and organizations that really can get the most out of what we're all about to go through in 2024, and being better prepared. I think the mystery of what's going to happen with DIR fees, like you were saying, Adam, it's just not knowing what's going to happen that makes us more nervous. It comes back to what Lisa was saying about planning, and both Pete and Scotty. I encourage every single person, if you own a pharmacy, if you're a technician, if you're a PIC, you're a pharmacist in charge at a pharmacy, a community pharmacy, it's knowing what's coming. It's anticipation of what's going to happen in in the New Year. I just want to give a shout out to Pete. I appreciate your guidance, and really not only giving us some leasing advice, but actually being a provider and being someone that can, we can access services through. Pete, how do we get a hold of you? We're a listener right now. We want to reach out to you, and we want to work with you. What's the best way to get a hold of you?
Pete: You can find us on the web at www.advantage-financial.com. There's phone numbers out there. You can contact RxSafe. Any one of those folks. You can contact Adam. He's got my stuff. Scotty and his company have my contact information as well.
Todd: Yeah, we're going to put that in the show notes, too. But we'll definitely have people reach out to you. If you want to reach out to Pharmacy Podcast Network, we can get you in touch with Pete as well. I'm drinking out of my favorite mug that was sent to me for Christmas of 2023 or 2022. It's the Sykes Company mug. I absolutely love this buddy. Thank you so much for sending this to me. How do we get in in touch with you, Scotty?
Scotty: The best place to get us is our website, www.Sykes-CPA.com. You can schedule a meeting and we'll do a video call. So feel free to reach out to me anytime. I'm happy to jump on a call and see what we can do to help you, and point you in a direction you need to need to go. So we'd be happy to help any way we can.
Todd: Thank you. Adam, I can't wait to see you at the next conference. I'm glad it's not in 2023. I'm so tired of conferences right now, I'm going out of my mind.
Adam: I think I'll see you in March, maybe in 2024 at DiversifyRx. And yeah, she's asking me to speak again, so that'd be fun.
Todd: Excellent. Lisa, I want to meet you. I love pharmacy owners. I love the way your minds work, and you're a planner, and I need more planners in my life.
Lisa: Thank you for having me.
Todd: I want to give a shout out to RxSafe. The team always takes care of us as an industry, as a profession. You're looking out for us. You have answers to other things that don't have anything to do with you directly, kind of being a puzzle piece, putting all those puzzle pieces together. Thank you so much for sponsoring today's webinar and podcast. If there's anything that you need, any questions from this, for advice or connection, please reach out to www.pharmacypodcastnetwork.com, you can find us in any platform @pharmacypodcast on LinkedIn, on Instagram, on Twitter. Anything we can do to put you in touch with these wonderful people. Thank you so much for this podcast, all of you: Pete, Adam, Lisa, Scotty, can't wait to work with you in 2024.
