Lease Business Equipment and Pay Nothing in Your First Year – No Kidding!

Leasing equipment is a great way for business owners to obtain new, needed business equipment.  Leasing offers real advantages to a business’s bottom line as the full amount of the lease, including shipping costs, installation charges, and maintenance fees can all be included in the lease and paid out over time - less out of pocket, up front expenses.  Further, leasing can mean lower monthly payments over traditional bank financing.  Can also be used for new businesses or for business owners with poor credit.  And,

Lastly, leasing, combined with IRS Code Section 179, can reduce your company’s income taxes by an amount greater than the total amount of your first year’s lease payments! 

According to WWW.SECTION179.ORG; “The obvious advantage to leasing or financing equipment and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction.” 

How this works: 

The lease has to be a non-tax capital lease, meaning that the leased equipment must be capitalized and shown on the company’s balance sheet.  However, these leases still come with all the benefits of leasing like those mentioned above (less out-of-pocket expenses and lower monthly payments).  Further, the equipment has to ‘qualify.’  Qualifying equipment includes: most equipment (and machinery) for business use.  Can also be personal equipment used in the business.  Can consist of business vehicles, computers, software, office furniture, and office equipment.  Further, large manufacturing equipment and tools can also be expensed under this IRS Code Section. 

With this deduction, a business can write down up to $250,000 in capital expenses against its annual income – even if it does not pay the $250,000 up front. 

This write-off of $250,000 is for this year (2008) only.  In 2009, the amount resorts back to the normal $150,000.  Further, the write down has to be in the year the equipment was acquired – no carry forward.

Reducing your business income, means reducing the amount of income taxes your business pays.  Lower tax burden, higher profits!

Before Section 179, a company could only deduct or depreciate a small portion of the cost of equipment each year; dolling out the cost savings over many years.  Under Section 179, a business can deduct the entire amount, up to the $250,000 limit in the first year.  Think about this:  You deduct, under the old rules, a $200,000 piece or pieces of equipment at 20%.  That amounts to a $40,000 reduction in taxable income or, at a 35% tax rate, a $14,000 increase in net income.  On the other hand, deducting the entire amount reduces taxable income by the $200,000 purchase amount, resulting in, at 35%, a $70,000 boost in profits!

Combine the Section 179 deduction of $250,000 for 2008 and a struggling economy where equipment manufacturers and vendors are reducing prices, this is the perfect time to obtain new business equipment.  Do not let this opportunity pass you by!

To find out more, contact your friendly neighborhood CPA or visit www.section179.org.