As a business owner, you are going to need some things and you will need to choose to lease or buy. Your decision will affect your taxes. You should consider the tax implications of leasing or buying before you make your final decision.
In this blog, we’re going to explore some of the things you should keep in mind when making your decision between leasing and buying.
You save money by leasing with pre-tax dollars
Let’s pretend you have an endless supply of cash on hand to obtain the vehicles and equipment you need when you need them. When you use that cash to make a purchase, you are using post-tax dollars. Therefore, a $60,000 item may end up costing $80,000 to $90,000 depending on your tax situation. Why is this? Because the business needs the pre-tax income to net the $60,000 required to make a purchase.
However, leasing is done with pre-tax dollars. Therefore, a $60,000 purchase is only going to cost you $60,000. Plus, lease payments are considered a business expense.
Leasing doesn’t allow depreciation deductions
If your business owns a vehicle or piece of equipment, the depreciation can be taken as a tax deduction over the life of the item. However, if you choose to lease, you don’t get to do that.
Leasing may allow you to get Section 179 tax advantages
Section 179 of the tax code does allow the cost of newly purchased assets to be deducted within the first year. However, you can lease and still take advantage of this deduction. However, you must be careful because Section 179 can change without notice. That’s why the next section is critical.
Consult with a tax professional
The truth is every business is different and laws vary from one state to the next. On top of that, tax laws are regularly revised. When it comes to taxes, things can get complicated. The best thing to do is stay on top of things by speaking with a tax professional, such as DAL Commercial Capital. to help you understand the ramifications of your decisions. We can help you decide between leasing and buying.