There are many benefits that come with choosing to lease business equipment as opposed to purchasing. When you run a business, regulating your cash inflow becomes a central part of all your operations. Once your business starts growing, and your invoices and bills increase, a major benefit to leasing equipment is seen in the tax benefits and incentives that business may receive.
Let’s examine these in closer detail:
Current tax guidelines consider all the costs paid towards leased equipment as expenses of the business which allows you to deduct the full payment from taxable income. This is contrast to purchased equipment which is shown on the books as an asset and has to be depreciated over its usable life.
Leasing equipment often allows for greater cash liquidity since many leases don’t require cash at closing. Purchasing equipment often requires a down payment which can be significant with expensive machinery.
- Local Tax Incentives
Tax advantages may vary according to the city, locality, or the suburban area you work in. Depending on your region and local laws, specific benefits in tax may extend to office supplies, IT equipment, vehicles and trucking solutions, construction equipment, etc.
Make sure that you are aware of the area-specific regulations that exist in your city or area. If you are not entirely aware already, do some research to find out the benefits available locally. This will allow you to avoid excessive costs and will create a more cost-effective business approach for you and your employees.
- Manage Inflation
If your cash-in-hand amounts to $150,000 for the current year and the inflation rates are at 6%, your money will only have a purchasing capacity of about $141,000 in the coming year. So, if you opt for purchasing and buying your business equipment, you stand to lose around $9000 in buying power in the following year. One of the best advantages of getting your business equipment on a lease is that you will avoid this loss of money because of inflation.
Whenever you file your tax returns as a business, the inflation rates in the current, as well as the coming year, will have a considerable effect on your profits. Leasing your business equipment will allow you to effectively manage your profits by preventing substantial losses because of inflation rates.
- Manage your risks better
Navigating the risks of business investments is a vital part of keeping your accounting profitable and favorable. Paying vast sums of money to purchase equipment can turn out to be a bad business decision a lot of times, particularly if the equipment in question is the sort to potentially become outdated and therefore worth less overall more quickly.
Take time to understand how these incentives apply to you and your business so that you can make full use of all the tax benefits that come with leasing your business equipment. Leasing equipment may not always be the best option available for every business but understanding the options at hand helps to ensure the most prudent decisions are made for the long term going forward – particularly if your business has issues with bad or damaged credit. We’ve particularly seen equipment leasing benefit in businesses related to trucking, heavy equipment, restaurants, and office equipment.