Buying vs. Leasing Equipment
Investing in equipment can be a large expense for your business. Understanding the differences between buying and leasing business equipment can help you save money and increase productivity. Buying equipment may not be financially wise despite the potential tax advantages. Here are some of the differences between buying and leasing equipment, and why it may be more advantageous to lease.
Deciding Between Leasing and Buying
One factor to consider is the total dollar amount of the investment. It may be wise to consult an accountant before making any final decisions. It is also important to keep in mind that buying equipment, even it does depreciate, has certain advantages including depreciation – a deduction. Deprecation of business equipment can be taken in the same year your equipment is purchased. Often, there can be substantial tax savings from depreciation. Reducing the net taxable income to $0 may be your businesses best bet for future interest planning. However, the total cost of ownership may still far exceed the lifetime value.
Understanding Your Options at The End of Lease
Leasing business equipment provides you various options at the end of your lease including the chance to buyout the equipment or returning it as initially anticipated. There may even be additional fees. If you decide to buyout your equipment when your lease is up, it eliminates the need to use your valuable time searching for a replacement asset. However, if the equipment is no longer needed it would be wise to return it.
Take Time To Evaluate Your Business Operations
Asking yourself how a specific piece of equipment will fit into your business operations and how frequently you will use it is extremely wise. If your company relies on having the up to date equipment, it would not be finically wise to purchase equipment. Constantly purchasing new equipment with a high turnover rate can send your business into debt rather quickly. To stay ahead of competitors, leasing provides you the opportunity to use high tech equipment you may not be able to purchase.
Some things to consider when deciding between renting or leasing business equipment are the tax implications, upfront costs compared to lifetime value of the equipment and the tax advantages such as depreciation. It would also be advantageous to consider your options at the end of a lease and decide whether buying out your equipment or selling it would be your best bet. Additionally, your business operations is a critical factor to consider when deciding whether or not leasing equipment is right for you.