The health care industry is thriving and medical equipment leasing is predicted to reach $56 billion by 2017. Health facilities consider tax benefits when making the decision between leasing and purchasing. What therefore are some of the tax benefits of leasing medical equipment?
If you didn’t get the memo, there was an important update for tax year 2013. As of January 2nd, section 179 might be the most profitable decision especially for medical facilities that considered leasing their medical equipment. This is because when you combine the full section 179 deduction and a well structured equipment lease agreement, the amount you deduct will exceed your cash outlay for 2013.
Not only that but for every $10, 000 financed, you get $179 bonus and this offer is valid up to 31st December 2013. This means that if you lease your medical equipment now, you will get your section 179 cash bonus and take full advantage of section 179 deduction.
Tax Benefits Of Leasing Medical Equipment
The tax treatment of leases in North America is very favorable. Lease payments are fully tax deductible against income when incurred. This is very different from when you purchase your medical equipment. This is because medical equipment will only be deducted for tax purposes over a period of time based on the depreciation rates prescribed by the government.
Depreciation rates for purchased equipment can vary depending on the timing of your purchase, the use of the equipment and the type of asset. Tax deductions for depreciations will vary every year because of government tax restrictions. Lease deductions on the other hand are always constant. More importantly, there are very strict rules on allowable depreciation during the first year of purchase, which may lead to a very low tax deduction in the year that you purchase the medical equipment. It gets even lower if you purchase it very early in the year.
Tax deductions of leased medical equipment will reflect cash outflows while those on purchased equipment will not. This may bring about serious cash problems in cash flow especially if your health facility is just a start-up.
Leasing on the other hand can provide you with full deduction lease payments against your current income and preserve your working capital. This would not otherwise be possible if you had used your capital to purchase your medical equipment.
This year, you can write off up to $500, 000 worth of medical equipment with a non-tax capital lease. The best part is you do not even have to spend that $500, 000. A small health facility that has a tight budget can use a non-tax capital lease to minimize the amount of capital used and still benefit from the Section 179 deduction.
10% purchase upon termination and $1 buyout leases are examples of non-tax capital leases. In most cases, the total amount of money in your first year of payments will be less than the amount that you will save in taxes.
Are There Any Other Advantages Of Leasing Medical Equipment?
Other than the tax benefits of leasing medical equipment, you will get to enjoy lower monthly payments as compared to traditional loans. When you pay two or more advance deposits, you can further lower your costs.
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Thanks to fixed rate payments, you can easily plan your budget. Moreover, some lease agreements cover the cost of repair and maintenance so you won’t have to worry about taking cash out of your pocket for such extra costs.
In the event that you need more money to improve the efficiency of your health facility, you can borrow a loan from a financial institution. This is because equipment leasing companies are less concerned about what you do with your business provided you make your monthly lease payments on time. This is, however, not the case when you borrow cash from a bank or credit union. You cannot borrow more money if you have not yet finished repaying your initial loan.
One of the obvious tax benefits of leasing medical equipment is the Section 179 deduction that allows you to deduct the full amount of the equipment without actually paying the full amount. Take note that Section 179 changes often and so you should speak to a financial advisor so that they can advise you what your tax benefits are and how to take full advantage of tax deductions.
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