Tax Deductions for Equipment Leasing and Financing You Should Know

You might be surprised about these tax benefits the next time you finance equipment.

By Robby Jimenez| Oct 10, 2022| 692 Views
Tax Deductions for Equipment Leasing and Financing You Should Know

Businesses often miss great tax-saving opportunities because they aren’t aware of them.

Your business doesn’t have to buy equipment straight away with cash to receive potential tax savings. Instead, you can conserve your cash and receive tax benefits.

In this article, you can see different ways acquiring equipment can help you save on its taxes.

In this article...

  1. Two Lease Types that Help You Save on Income Taxes
  2. Potential Tax Benefits of Leasing or Financing Equipment
  3. Calculate Your Potential Tax Savings
  4. Grow Your Business by Financing Today

Two Lease Types that Help You Save on Income Taxes

Equipment leasing is becoming the preferred method of acquiring equipment.

Equipment financing is so important to business growth that nearly 80% of U.S. companies utilize some form of funding when adding additional equipment to their operations. That’s because a lease purchase plan allows businesses to have the most effective operation possible (from both a financial and operational standpoint).

Let’s look at two types of leases that can help you save on your taxes.

Capital 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 to use deprecation as a deduction, the IRS requires the property to be owned by you. Fortunately, if you have a capital lease like an Equipment Financing Agreement or a $1 buy-out option, you can claim depreciation over the useful life of the asset.

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 acquired your equipment instead of splitting it up over many years.

Operating Lease

An operating lease is a contract that allows for use of an asset without transferring ownership.

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. This type of lease is written with either a fair market 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.

Potential Tax Benefits of Equipment Leasing & Financing

When your business acquires equipment, tax deductions are realized over its useful life.

However, your business can reap the benefits sooner by using Section 179 tax deduction.

Accelerated tax benefits

Under normal situations, when your business acquires equipment tax deductions are realized over its useful life. You write-off a portion of the purchase price annually and spread out your tax benefit in small increments over several years.

With Section 179, you are able to deduct all or part of the equipment’s purchase price that same tax year. Rather than deducting smaller portions of the equipment cost over several tax years, you can receive it in one.

This can significantly reduce your taxable income and effectively lowers your tax bill for the year you purchased your equipment. True tax lease – monthly payments may be deductible during the life of the lease.

Remember: Be Sure to Consult Professional Tax Help

If you’re thinking about using Section 179, be sure to consult with your certified public (CPA) or tax advisor before any equipment purchases. That way, you can get details what is best for your business.

Calculate your potential tax savings

Interested in seeing how much you tax savings you’re eligible for? Download Beacon Funding’s mobile app today and see how much you qualify for.

Grow Your Business by Financing Today

At Beacon Funding, we want to see your business succeed. And when it comes to fast and easy equipment financing, we’ve helped tens of thousands of businesses finance over $1 billion in equipment.

Interested in getting equipment sooner than later for your business? Apply today and receive a same-day response from a financing consultant. We’ll help you get a head start on getting equipment, so you’ll have plenty of time before any tax-related deadlines.

Robby Jimenez

Robby Jimenez

P: 847-627-1611 |  ESchedule a Meeting with Me

As a Senior Financing Consultant, Robby enjoys helping his customers realize their dreams of growing their business with customized solutions. He works diligently to get them approved for the financing they need hassle-free.