2021 Tax Benefits for Equipment Leasing and Equipment Financing

By Asher Zallik| Feb 25, 2022| 1046 Views
4 MIN

You Worked Hard This Year! Ready to Reward Yourself with a Tax Break?

Businesses often miss great tax-saving opportunities because they aren't aware of major tax breaks. Many business owners don't know that you don't have to purchase an asset outright to save on your income taxes. If you acquired equipment in 2021 using a loan, lease, or finance agreement, keep reading to learn about potential tax benefits available.

Pro Tip: Talk to your tax advisor to determine the tax ramifications of acquiring equipment or software for your business.

How Do Tax Deductions Work for Equipment Leasing and Equipment Financing?

Paying extra taxes to be your own boss is no fun. The good news is that the government offers two different tax benefits to ease the financial burden. We’ll break down how differences in agreement structuring impact available tax benefits.

Two Ways to Save on Your Income Taxes: Capital Lease VS Operating Lease.

A capital lease is a contract that coveys a purchase of an asset. For accounting purposes, a capital lease is treated as if it were actually owned by the lessee and is recorded on the balance sheet as such. This is important because in order to use deprecation as a deduction, the IRS required you to own the property. Luckily if you have a capital lease like an EFA (Equipment Financing Agreements) or a $1 buy-out option, you can claim depreciation over the useful life of the asset.

Pro Tip: If you have a capital lease, talk to your tax advisor about accelerating your tax deduction with Section 179. Write-off 100% of the purchase price the tax year you acquire instead of splitting it up over a many years.

An operating lease is a contract that allows for use of an asset without transferring ownership. This type of lease is usually written with either a fair market value purchase option or a fixed purchase option, such as 10% of the equipment cost. Since the lessor still maintains ownership of the equipment, businesses can’t claim depreciation. However, because an operating lease generally counts as a rental expense, it still qualifies for tax incentives! Business owners may be able to write-off their lease payments.

Pro Tip: Operating leases are considered “true tax leases.” Talk to your tax advisor about how much you can save with a write-off for your lease payments.

Have Much Could You Save on Your 2021 Income Tax Return?*

Whether you leased or financed, learning how to utilize every available tax break can accelerate the success of your small business. Review the chart below to as we break down the tax savings of two different equipment purchase scenarios.

Type of Agreement

Operating Lease

Capital Lease

Tax Write-Off

Deduct Lease Payments: Monthly payments may be deductible during the life of the lease.

Section 179 Depreciation: 100% of the equipment may be deductible in the tax year it's acquired. Expense up to $1,050,000 of equipment acquired in 2021.

Tax Savings Example

 

 

Lease Structure

$50,000 worth of equipment on a 36-month lease with FMV 10% purchase option.

$50,000 worth of equipment on a 36-month lease with $1 buyout.

Monthly Payment

$1,480/month

$1,620/month

Projected 2021 Tax Savings
(Assuming 35% Tax Bracket)

$6,216

([$1,480 x 12 months] x 35 percent)

$17,500

($50,000 x 35 percent)

Projected 2022 Tax Savings
(Assuming 35% Tax Bracket)

$6,216

([$1,480 x 12 months] x 35 percent)

$0

Projected 2023 Tax Savings
(Assuming 35% Tax Bracket)

$6,216

([$1,480 x 12 months] x 35 percent)

$0

Projected Total Tax Savings

$18,648

$17,500

*All examples provided herein are for illustrative purposes only. Actual numbers will vary based on credit & individual financial situations.

Download Our App to Estimate Your Section 179 Tax Savings Today!

With Section 179, you can get thousands back just for financing qualified equipment before December 31, 2021.

Be Sure to Get Professional Advice

Equipment leasing is fast becoming the preferred method of financing. Nearly 80% of all U.S. companies lease some or all of their equipment. Why? Because the flexibility of a lease purchase plan allows them to have the most effective operation possible, from both a financial & operational standpoint.

For businesses large & small, taxes can obstruct cash flow. Utilizing equipment leasing and financing tax deductions can help your business lessen the financial burden.

Potential Tax Benefits of Equipment Leasing & Financing Recap

  • Accelerated tax benefits structured according to your needs
  • True Tax Lease - Monthly payments may be deductible during the life of the lease
  • Section 179 (EFAs/$1 Buyout) - 100% of the equipment may be deductible in the year it’s acquired

If you acquired equipment in 2021, remember to discuss your write-off options with your certified public accountant (CPA) or tax advisor. We cannot provide you with specific tax information for your business. Please contact a tax professional for more information.

To learn more about the benefits and tax savings available to you, visit www.beaconfunding.com/taxsavings.

Asher Zallik

Asher Zallik

P:847.307.6238 |  E Contact Me

Graduating with a bachelor’s degree from the University of Illinois at Urbana-Champaign, Asher Zallik is the financing consultant you will wish you knew when you started your business.



02/25/2022