Equipment Leasing, Taxes, and Your Business

Equipment Leasing & Taxes

Equipment leasing has a lot of benefits, the biggest being that payments are much more manageable than the upfront cost of purchasing equipment, which typically leads to taking out a bank loan and putting debt on the balance sheet. However, one of the overlooked advantages of equipment leasing comes every year when tax season rears its ugly head.

Equipment Leasing As a Deductible

One of the major points against equipment leasing is that those pieces of equipment are not owned, and therefore not considered assets. Business owners cannot claim depreciation on leased equipment. However, according to the IRS Tax Section 179, all payments made on leased equipment can be claimed as deductibles on the tax return. “Leased equipment” also extends to software licenses, servers, and vehicles, which gives business owners a huge incentive to take equipment leasing agreements over purchasing.

How Deductibles Work

Under Section 179, all payments made on equipment leasing contracts are considered deductible up to at maximum amount of $500,000. All payments for heavy equipment, software licenses, storage rentals, industrial vehicles (which can be claimed up to $25,000 per vehicle), and even rented property that is not attached to the main business facility must be itemized on the tax form.

Deductibles and Business Revenue

There is a caveat when itemizing equipment leasing deductibles, that all business owners must understand before they get ideas of a potentially huge refund. The total amount for the deductibles listed under equipment leasing must not exceed the amount of income a business is claiming for a given year. For example, a new medical facility, restaurant, or construction company may end up leasing a lot of highly specialized equipment to use throughout the year. However, the revenue earned by those businesses may be lower than the total amount of deductibles. The difference in the two numbers cannot be claimed as part of the refund.

Be Careful When Preparing your Business Taxes

When itemizing equipment leasing deductibles, make sure you have matching receipts and copies of the leasing agreements. This is a good way to protect yourself in case the IRS decides to do a spot audit. Better yet, hire someone who is familiar with the most current tax laws who can sift through your deductibles and get the best tax return for your business. It will save you times, and ultimately, it will save you a lot of money.

Equipment leasing is a much less expensive alternative to purchasing equipment for your business, but the ability to deduct those monthly payments on your yearly tax forms can save your business even more.


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