Business Equipment: When to Buy and When to Lease

Whether you own and run a small retail shop or a large construction company, every business needs equipment to ensure productivity and efficiency. Having access to the right equipment is important to fulfill customer orders and manage internal operations. However, whether business owners should lease or purchase equipment is a divisive issue, with entrepreneurs who firmly adhere to one side or the other. The truth is that there are advantages to both, and only by understanding leasing and owning equipment can business owners make an informed decision.

Purchasing Equipment for Your Business

Purchasing equipment is a good fit for businesses that use specific pieces of machinery or vehicles regularly. Purchasing equipment not only provides the necessary tools to carry out day-to-day operations, but it also adds equity value to your portfolio. Keep in mind that purchasing equipment usually comes with a sizable cash outlay, but that is offset later when you file your business taxes. Section 179 deductions allow businesses to list equipment purchases. As the IRS Tax Code stands now, businesses can deduct the full purchase of equipment for the first year, and then deduct the depreciated values for the following years. Because business deduction amounts are subject to change, it is always wise to consult with an accountant or professional tax preparation service.

Leasing Equipment for Your Business

There are a number of reasons why businesses might prefer to lease equipment. First, if the business is in a specialized industry where there are constant technical advancements – such as IT and healthcare – leasing equipment makes sense because individual pieces can be upgraded as newer models become available without having to go through the process of selling aftermarket equipment and making new purchases. Additionally, if your business is in an industry where heavy wear and tear is placed on equipment, leasing might be a more financially sound decision. Leased equipment is not considered an owned asset, so businesses cannot claim depreciation. However, businesses still have tax benefits available. Payments made on equipment leasing agreements can be deducted up to a maximum of $500,000 so businesses can recoup some of their operating expenses. As above, tax laws are subject to revision every few years, so always consult with a professional before making deductions.

Nanaki Capital specializes in both equipment financing and equipment leasing programs. Whether you need equipment for your new business, or if you need to replace or upgrade existing equipment, contact the experts at Nanaki Capital today.

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