How Equipment Leasing Affects Your Taxes

Running your own company takes a great deal of time, money, and energy. There are so many factors and details to consider, it can often be overwhelming to manage it all. As a start-up company, simply purchasing all the necessary equipment seems daunting. Fortunately, there are numerous available resources for small businesses. Instead of purchasing all the needed equipment, consider equipment leasing. This type of leasing is a great option because businesses can write off lease payments as a business expense.


How Equipment Leasing Works


First, be sure to get all the details when it comes to your specific equipment lease terms. There are some companies that offer the option to purchase the equipment at the end of the lease. While this may seem like a great deal, there could be some tax implications that you need to consider. For example, the Internal Revenue Service may re-characterize your lease as a sale if it involves any of the following scenarios:


  • Acquiring the title to the equipment after paying specified lease amount
  • Your lease payments exceed the fair rental value of the equipment
  • Part of your lease payment establishes equity in the equipment


Because leasing equipment can become complicated due to the high cost and length of the contract, it’s best to reach out to a tax professional to assist you in determining the best situation for your company.


Tax Benefits


It’s vital to understand all the tax implications when it comes to equipment leasing. One of the first benefits of leasing equipment is saving money. If you’re purchasing a piece of equipment for $50,000, you will likely spend an additional $30,000 in taxes. However, if you lease the same piece of equipment, the item truly costs $60,000 in lease payments. Additionally, those lease payments can be written off as business expenses.


There are likely other tax benefits available for those who are leasing equipment. Internal Revenue Code Section 179 offers some possible advantages for those businesses leasing equipment. It’s important to consult a tax expert to clarify what tax benefits are available in your specific state and situation.


Equipment leasing may be the perfect solution for a new or small business looking for a way to acquire all the necessary equipment to get their business up and running. Be sure to get advice from a tax professional to guarantee you have all the details. In addition to having all the right equipment for your business to operate smoothly, you’ll feel secure knowing you’re taking advantage of all the tax benefits available to you.

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