Tax Advantages Of Leasing

Written by James McNee
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Many new or struggling businesses receive a financial boost through the tax advantages of leasing. It is estimated that over 80 percent of businesses in this country lease some or all of their equipment. It is a very fast-growing alternative to purchasing equipment. Almost any type of equipment may be leased, from office furniture to computers and software to heavy machinery.

Understanding the Tax Advantages of Leasing

Leasing protects a company's borrowing power because it has no impact on bank credit lines. This available cash may be used for an increase in inventory or other items which qualify as tax write-offs. When equipment is leased, there is no need to maintain depreciation schedules for tax reporting. Lease payments are usually considered a pre-tax business expense. Therefore, taxable profits are reduced. Paying cash for equipment increases profits and therefore, raises the amount of tax paid.

In addition to tax advantages of leasing, many companies benefit from a monthly payment that is lower than what they would face with other financing methods. The extra cash reserves may be used whenever revenues are unexpectedly low or when unpredictable expenses create a problem. Purchasing equipment usually requires a down payment of 25 percent or more, which could seriously interrupt cash flow.

Experts are available to explain the tax advantages of leasing through traditional leasing companies and online sources. Leases typically cover a 36 to 72 month period, but customizing is available to meet individual needs. Lease agreements should be compared to check for hidden costs or prepayment penalties.

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