What is the Tax Advantage to Leasing Equipment versus Buying Equipment?

Is there a major tax advantage to leasing equipment, and will it give your business an edge?

tax advantage to leasing equipmentWhether you’re running a restaurant or starting up a gym or getting ready for sowing season or getting your hospital set up, you need equipment. All business know the struggle of managing expenses versus income, and considering good equipment is the more expensive part of many companies, you need the best deals possible for your company’s hardware.

After all, you’re already paying a great deal of money on licenses, utilities, the building you use, and the employees you hire that having a way to cut costs on your equipment can be very effective; any edge you get is an advantage you can employ exponentially throughout your company. That’s why leasing can be an effective upside to any business: with a lease, you can avoid spending huge amounts of money on startup and instead expand your payment into small, monthly fees over a period of time.

Plus, you get well-running equipment for the duration of the lease that you can buy, return, or continue leasing with an upgrade once the lease is up.

There are many upsides to getting a lease on your equipment, such as the tax advantage to leasing equipment, they ability to cut initial and long run expenses, and more. But many business owners still wonder how does leasing equipment stack up against buying the equipment, or simply getting a loan on your hardware. 

Why Buying Equipment isn’t Always the Right Choice

Buying equipment always has its upsides, and oftentimes the main benefit is the turning point for business owners: ownership. They want equipment that’s theirs, which they can do whatever they want with, and this is certainly understandable in many cases. In addition, buying equipment allows you to claim the equipment as an asset, which can save you some money on your taxes depending on what you buy.

However, many business owners don’t realize that buying equipment can mean that you’re chained to the equipment you get, and when you spend a big sum of money on that hardware, that can be a very detrimental thing to your company.

For instance, some businesses will choose to buy a few laptops at a high price for the company, only for them to be considered outdated and being worth essentially nothing within a few years.

Other businesses will buy equipment that breaks down far too easily, which again becomes very painful for a business financially.

How Leasing can Become an Asset: The Tax Advantage to Leasing Equipment

There are quite a few reasons to lease equipment, the first being the way the payment is set up. Having the ability to pay flat monthly rates for the duration of a contract is so much easier to handle financially for a company versus paying a huge sum of money right up front.

In addition, you get better equipment than if you bought it, and at the end of the lease you can work on getting the equipment upgraded so you stay ahead of the technology curve.

Once a lease is up, you can buy the equipment, return it, or continue the lease, so everything involving leasing comes with options for your convenience. In addition, there is a tax advantage to leasing equipment because you get a tax deductible out of your leases, allowing you to potentially get your leases payments deducted as a business expense.

However, many businesses don’t understand leases and fall prey to the downsides of leasing.

How can I make Leasing an Asset?

The key to leases is remembering that they’re contracts and they’re negotiable; but once you get one, you’re stuck with it. That’s why your first pick for a lease better be the one you want and you can’t just settle for whatever deal comes your way.

All of the bad stories you may have heard from leases comes from business owners that got a long term lease on short term equipment, and once they tried to get out of the contract, they found a hefty termination fee in their way. Make sure that the equipment you get will last and be needed as long as the contract period is, and make sure that the flat monthly rate your quoted is reasonable in the long run.

You can’t take advantage of the upsides of leasing if you settle for a bad contract and only get downsides. There is a financial advantage to getting a lease, a tax advantage to leasing equipment, and a long term advantage to having the lease, but only if you do your research and do some exploration for the deal that you want.

To learn more about how you can make leasing an asset to your business, click here.