Determining whether to purchase or lease equipment necessary for the successful operation of a business can be a daunting task. Many factors need to be considered, as there are advantages and disadvantages to both buying and leasing equipment. As a business owner, it is wise not only to reduce costs but to save money on expenses as well. Therefore, it is extremely important that factors such as the overall cost of the equipment, the usable life of the equipment, and possible tax breaks related to the equipment get sufficient and judicious contemplation.
Many times, business owners simply do not have the capital necessary to buy needed equipment. In situations such as these, leasing equipment can be an excellent option. When equipment is leased, a business can acquire their much needed equipment with minimal up-front expense. While leasing equipment is generally more expensive than purchasing equipment, the initial out-of-pocket cost reduction that leasing offers is often appealing.
Lease payments may be deducted as a business expense on a business’ tax return. High-tech equipment can become obsolete within a matter of years. This fact makes leasing equipment attractive because leased equipment can be upgraded when necessary, which can help a business reduce costs in the future. Leases may be flexible, but payments must be made even when the equipment is not being used. Leases often carry higher overall costs and no equity is being established.
For businesses have the necessary financial resources at their disposal, purchasing equipment may be the preferred option. The main advantage of purchasing equipment is ownership and built in equity. In the year of purchase, for some equipment, the full cost of the equipment can be deducted from taxes. This can be a significant expense reduction depending on the price of the equipment.
Additional tax savings may be available in the form of a depreciation deduction. This could be another cost reduction for the business. Since the goal of most businesses is to reduce expense, the tax breaks offered by purchasing equipment may help business owners reach this goal. However, purchasing equipment does have higher initial costs and there is the potential that equipment will become obsolete and have little resale value. For additional tax saving advice, visit www.kenhimmler.com
Whether trying to save money on expenses or attempting to overall reduce expense, the cost-effectiveness between leasing and purchasing will vary for every business.