“OK, I’m a business owner who needs lots of equipment to run by business, what are the tax advantages of leasing equipment? Why shouldn’t I just buy it instead?” Good question. We answer that here…
The answer to that question ultimately depends upon your company’s specific situation. But throughout the years, leasing equipment has been gaining a lot of popularity among business owners because it’s a great option for those that have limited capital or who require equipment that must be upgraded every couple of years.
Another important reason why leasing has become a popular choice among business owners is the fact that leasing comes with many tax benefits.
Although your CPA may tell you there are significant tax benefits, what are the tax benefits of equipment leasing in detail? For a busy business owner, these are important question to have answered.
What Are the Tax Advantages of Leasing Equipment? Understanding Pre-tax Dollars and Post-Tax Dollars
One of the first things that you should understand when it comes to viewing the benefits of leasing your equipment as opposed to buying your equipment outright is that taxation plays a huge part in your decision. First and foremost, you must realize that if you buy a piece of equipment with cash, then you are basically paying with “post-tax dollars.”
Think of it this way, even though you may have enough money in your financial account to buy a piece of equipment outright, you are essentially paying with post-tax money, meaning that you are adding 34 percent to the sale price of the equipment that you need.
If you decide to lease, you will essentially be using “pre-tax dollars” instead. When you set up a “true lease” agreement for a piece of equipment, the leasing company owns the piece of equipment that you need, and you “rent out” that piece of equipment from them, using a long-term rental agreement. With this true lease structure, the payments of your lease can actually be written off as an expense on your taxes.
The Section 179 Equipment Leasing Deduction
If your business is looking to deduct the full purchase price of a leased and/or financed piece of equipment for the current tax year, then you should look no further than Section 179 of the Internal Revenue Service Tax Code. The equipment that you leased or financed must be with the specific dollar limit of this section of the tax code, and the leased equipment must have been placed in service within that same tax year.
For example, if you lease a dishwasher for your restaurant in 2013, it must have been placed into service at some between January 1, 2013 and December 31, 2013, otherwise you will have to wait for the following tax year.
Taking advantage of Section 179 of the tax code when it comes to leasing or financing equipment is one of the most popular strategies among business owners. In fact, taking advantage of Section 179 is a very effective strategy, particularly because the deduction may even exceed the yearly amount of money that you will spend on the lease itself.
The Section 179 Rules
To many people around the United States, Section 179 of the tax code is considered to be a loophole. But it is very important that you know exactly what qualifies you to use Section 179. Here are three very important guidelines to determining whether you are qualified or not:
- You have to have an income that is taxable of at least the amount of your expenses. This income that is taxable can come from your business and another business that you claim.
- You can either expense, which is Section 179, or depreciate the equipment that you are leasing, but you cannot do both on the same item, in the same year.
- In order for the item to be eligible for Section 179, the leased item must be used for at least 50 percent business purposes. If you use it for less than 100 percent business purposes, then you can only claim for the percentage that you use for the business, and nothing more. This is known as the “business percentage.”
In other words, if you lease or finance equipment for your company, this tax code allows you to deduct the cost of your leased equipment in one year, as opposed to deducting money over a period of multiple years.
Section 179 Deduction Limit
With the new stimulus act that was passed, the deduction limit of Section 179 is now $139,000, and the total amount of equipment that is purchased cannot be larger than $560,000. These new rates are likely to go down in a couple of years, so it may be beneficial for you to take advantage of these rates now before the rates expire in future years.
What Are the Tax Advantages of Leasing Equipment: General Summary
If you are looking for more tax information regarding leased or finance equipment for your business, then you get into contact with your local IRS expert, accountant, bookkeeper or visit the official IRS website. You should never have to spend more money than you have to, and you should always find a way to get back as much money as possible through your taxes, as this saved and returned money can be put towards other very important expenditures for your business.
Think of what you could do with that cash you would have spend on a pizza oven or an MRI machine or a new treadmill or a new forklift. You could now: hire staff, pay for more advertising, get a new sign out front, update your accounting software, not worry so much about cash flow – pay your employees on time this month. The benefits are pretty huge. And what a burden off you!
LeaseQ – For All of Your Leasing Equipment Options
If you are in the marketing for fast, easy, and free equipment financing, then you should look no further than us here at LeaseQ. This video explains how easy we make it for you:
to make things even easier, LeaseQ has joined forces with many financing companies in the lending marketplace to make sure that they are offering you the best and most competitive lending rates across the board. So if you want an INSTANT quote, multiple choices on payment plans, and a pre-qualified lease on your business’ equipment needs, then you should look no further than LeaseQ.
Visit the LeaseQ website by CLICKING HERE, or give LeaseQ a call at 1-888-688-4519.