What is the Potential Tax Implication of Leasing?

Is the tax implication of leasing make renting equipment beneficial to companies?

tax implication of leasingThe process of starting up your own company, whether you deliver products or make and sell food or just provide a service, always has the same general steps and a few tricks to it. Mostly, it’s about preparation and knowing all of the different ways that you can get an edge above your competitors, whether it’s having the better quality service or the best location or good equipment.

All of this more or less involves your finances though, and getting financing for a business is ridiculously challenging. Many businesses have a solid plan for success: they know all the tricks and have everything ready, but they don’t have the money to put their plan in motion the way they want to, and this oftentimes turns out to be very detrimental in the long run.

A solution used is normally leasing; taking a lease on some or all of your equipment allows you to free up all of your potential hardware payments and put them towards making sure other parts of your business are pristine, and the lease can provide other benefits to you too in the long run.

Leased equipment is in very good shape, and there is a tax implication of leasing as well as other options that are designed to make your business’s jumpstart that much smoother.

How can Buying Equipment Help me and Hurt Me?

Many business owners do purchase at least a percentile of their equipment, and this is understandable for a couple reasons. However, knowing the downsides of buying equipment can help you determine what hardware is better to buy and which is better to lease.

Many business owners buy their own equipment just for the concept of ownership: they want to know that the equipment is theirs, they’ll never lose it, and it is entirely their responsibility.

Of course, this does allow them to claim the equipment as a business asset and get money out of the deal, which is a plus side to buying the equipment. However, having the wrong type of equipment is detrimental to a company, and normally equipment too expensive will require a bank loan, which businesses do try to avoid, even though they can be both necessary and reasonable.

For example, if you buy equipment that will either break down soon, be outdated soon, or just won’t be needed for long, then you’ve spent a great deal of money essentially for a short term reason, and this hurts you financially. On the other hand, equipment that lasts long and doesn’t get outdated (i.e. a bakery or restaurant oven) is extremely pricey and may not be affordable for you.

What is the Tax Implication of Leasing?

There are quite a few advantages to getting a lease compared to just buying the equipment, one of them being simply the price. A low, flat monthly rate is much easier to handle than a huge payment up front, especially on the more expensive equipment that your company is bound to need, and getting quality hardware in this department is even more expensive.

Luckily, leases offer the best of equipment as well as options for upgrading equipment so you don’t lose out on the next big thing with the hardware. In addition, there is a tax implication of leasing in the form of tax deductibles you get on your returns every year, putting more money in your pocket because you have an equipment lease.

Getting a good equipment lease is extremely handy and can be an important piece of any company’s success, but you need to know how these leases work first.

Are there any Downsides to Leases?

The main disadvantage from a lease is guaranteed to stem from lack of user error. No matter what you get into for your business, rule number one is that you should always do your research and know what you’re getting into, and leasing is no different.

Many a business owner gets hooked on a bad lease and ends up with more problems than solutions, simply because they settled for the worst possible lease they could’ve gotten and did not use smart leasing. A bad lease is a lease that’s contract period lasts longer than the time you need the equipment; it is also a lease that costs way more overall than the price of the equipment.

Good leases are out there, but you need to know what you want out of a lease before you go searching, and you need to learn to not settle until you get what you want.

If you have a set contract period, monthly rate, and other deals in mind, look for them, because there are all kinds of leasing deals out there, and you can potentially find the best one suitable for your company. To learn more about leases and the tax implication of leasing, click here.