As the 2025 tax season approaches, it’s important for business owners to start thinking about how to take advantage of tax benefits. The US government provides various methods for businesses like yours to reduce their taxable income when financing eligible equipment.
What many startups (and even established businesses) don’t realize is that they can save on their income taxes by financing equipment that qualifies for deductions.
When you realize the full potential of Section 179, it’s not just about saving money – it’s also a smart way to decrease the upfront costs of needed equipment and expand your business.
In this article…
- 2 Types of Equipment Financing Options
- Capital Lease
- Operating Lease
- How Much Could You Save on Your 2025 Income Tax Return?
- Maximizing the Benefits with the Section 179 Deduction
With Beacon Funding’s equipment financing calculator, you can find out how much you can save on your 2025 taxes with Section 179 by financing equipment before 2024 ends.
Let’s start from the beginning and discuss the two types of leases, shall we?
2 Types of Equipment Financing Options
For starters, you have two equipment financing options. They are the capital lease and the operating lease.
Capital Lease
A capital lease is like a contract that grants you ownership of an asset. This option also goes by the name “finance lease” and is treated as if you’ve bought items for the accounting department.
In order to use depreciation as a deduction, the IRS requires you to own the property. If you have a capital lease, such as an Equipment Financing Agreement (EFA) or a lease with a $1 buy-out option, you’re able to claim depreciation over the useful life of the asset.
Quick tip: If you’re using a capital lease, talk to your tax advisor about how to maximize your tax deductions with Section 179. You may be able to write-off the whole purchase price in the same tax year you get the equipment.
Advantages of Capital Lease
As the lessee, you can claim depreciation on this item and deduct interest expenses.
What are the benefits of a capital lease? It’s perfect for long-term financing due to its useful life conditions. Also, you have control over the financed piece of equipment during the lease term. When the lease term ends, you become the owner.
Operating Lease
An operating lease is like a rental agreement that allows you to use an asset without owning it. Unlike a capital lease, the financed asset remains off your balance sheet. The lease payments you make are treated as operational expenses. So, they will affect your income statement, not the balance sheet.
The main difference from an operating lease to a capital lease is that the lessee can exercise purchase options at the end of the lease term.
Advantages of Operating Lease
This financing option is perfect for businesses that change equipment pieces frequently, looking to upgrade to the latest equipment technology, or enhance cash flow through lower monthly lease payments. It also makes financial reporting much easier since the asset doesn’t go on your balance sheet.
Lease payments are 100% deductible as operational expenses, too. It improves cash flow without affecting your business’s debt ratios.
Operating leases typically have buy-out options in which ownership of the equipment can be bought for $1 or 10% of the original purchase price.
Be sure to contact a tax professional
Before signing a lease agreement, be sure to get a tax professional. Your tax professional will make sure you’re choosing the right financing option based on your unique business model.
How Much Could You Save on Your 2025 Income Tax Return?
Whether you leased or financed, learn how to utilize every available tax break to accelerate the success of your small business.
Down below, you can see a fantastic breakdown of your potential tax savings for two different $55,000 equipment purchase scenarios.
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Type of Agreement
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Operating Lease
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Capital Lease
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Tax Write-Off
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Deduct Lease Payments: Monthly payments may be deductible during the life of the lease.
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Section 179 Depreciation: 100% of the equipment may be deductible in the tax year it's acquired. Expense up to $1,220,000 of equipment acquired in 2024.
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Tax Savings Example
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Lease Structure
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$55,000 worth of equipment on a 36-month lease with FMV 10% purchase option.
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$55,000 worth of equipment on a 36-month lease with $1 buyout.
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Monthly Payment
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$1,632/month
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$1,838/month
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Projected 2025 Tax Savings
(Assuming 35% Tax Bracket)
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$6,854
([$1,632 x 12 months] x 35 percent)
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$19,250
($55,000 x 35 percent)
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Projected 2026 Tax Savings
(Assuming 35% Tax Bracket)
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$6,854
([$1,484 x 12 months] x 35 percent)
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$0
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Projected 2027 Tax Savings
(Assuming 35% Tax Bracket)
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$6,854
([$1,484 x 12 months] x 35 percent)
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$0
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Projected Total Tax Savings
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$20,562
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$19,250
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*All examples provided herein are for illustrative purposes only. Actual numbers will vary based on tax brackets, lease payment amount, and individual financial situations.
Get Professional Tax Advice
If you acquired equipment in 2024, 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.
Calculate Your Capital Lease’s Potential Section 179 Tax Savings
See your potential tax savings now by downloading Beacon Funding’s mobile app. Your results are just a few clicks away!
Maximizing the Benefits with the Section 179 Deduction
As a business owner, Section 179 can be a powerful for growing your business and claiming full depreciation in the first year you acquire it. With Section 179, you can deduct 100% purchase price of acquired equipment from your gross income for the year instead of taking depreciation over several years.
In 2024, the deduction limit is $1,160,000. To qualify, equipment must be financed and placed into service between January 1st and December 31st, 2024.
Tips to Maximize the Benefits of Section 179
- Ensure the eligibility of the equipment purchased in 2024.
- Purchase the equipment between January 1 – December 31, 2024, and use it more than 50% of the time for business. This way, you could be eligible for a Section 179 deduction on your 2025 taxes.
- Talk to a tax advisor (preferably a CPA). This ensures your equipment purchases comply with IRS regulations. Make sure your financing plan is supervised by Beacon Funding.
Get Started Today
Looking to finance a piece of equipment before 2024 ends? It might be the best decision you make this year! Find out how much you can deduct as per Section 179 easily by clicking the button below. In just a few clicks, it’ll show you the tax-saving potential for your small business using Section 179.
CALCULATE HOW MUCH I CAN DEDUCT
Working with a reputable and experienced lender who understands your industry and business goals is key. Don’t hesitate to get in touch with an experienced financing consultant to ask questions and learn about the benefits of flexible financing options. With the right support and resources, you can set yourself up for success and grow your business with equipment financing.