“To lease or to buy, that is the question”
The lessee receives a tax benefit by being allowed to claim the entire equipment lease payment as a business expense, thus lowering the businesses’ taxable income. Expensing the full payment is also easier to account for on a company’s financial statements because only one general ledger entry is necessary to “book” the expense.
By leasing, a company can finance 100% of its equipment costs. This allows a business to use capital or other means of credit to invest in other areas of their company. Alternative investments can often times produce income that can negate or exceed the cost of the lease.
Makes Budgeting Easier:
Leasing allows a company to acquire equipment immediately without a huge cash outlay. If structured correctly, a lease provides a monthly expense that doesn’t change. This allows you to forecast expenses more accurately.
Leasing keeps equipment up to date and businesses competitive:
A rule of thumb from businesses and financial advisors encourages businesses to match the productive life of an asset with the liability associated with that asset’s acquisition. By matching the lease terms to the life of the equipment, a company can match payment obligations to the productive, revenue-generating life of the asset.
Improve Your Balance Sheets
A more attractive balance sheet can be yours thanks to equipment leasing. That’s because your monthly lease payment is viewed as a business expense instead of a liability or long-term debt. As you know, having little or no debt on your company’s financial statements is a huge benefit when it comes time to secure business funding
Leasing provides the kind of flexibility that buying can’t:
- – Leasing allows a business to evolve and change with its industry
- – By choosing to lease instead of buying, a business can avoid the initial outlay required for new equipment
- – You can avoid being stuck with outdated equipment
- – Leasing allows you to maintain equity in your business
- – Don’t have to rely on cash from operations to fuel growth
Section 179 Tax Benefits:
Section 179 tax deduction applies to certain types of qualifying equipment and technology that are leased. Consult with your accountant or tax advisor to find out if your equipment is eligible.
2016 Deduction Limit = $500,000
This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2016, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2016.
2016 Spending Cap on equipment purchases = $2,000,000
This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true “small business tax incentive”.
Bonus Depreciation: 50% for 2016
Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached.
Note: Bonus Depreciation is available for new equipment only.
The above is an overall, “simplified” view of the Section 179 Deduction for 2016. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing please contact your tax advisor.