Many factors will affect your tax situation no matter the choices you make in your business. To buy or lease, you will still experience business tax implications. It is, however, crucial to understand how your decisions can influence your tax needs and how best to overcome them. You should also note that with leasing, the tax implications for your business tend to vary with the situation.
Leasing Helps You Save Pretax Dollars
As much as your wish is to buy equipment, there are higher chances of incurring more charges in the long run. Taking, for example, if you bought a car; there are government levies, insurance charges, and pre-tax coming from your income. With these financial expenses, negatively affecting your business becomes possible. This is, however, different when you consider leasing because you write off payments that would otherwise affect your business.
You Lower the Overall Business Operational Costs
To effectively run a business, you must ensure the overall costs are as low as possible. With the different business needs, the tax obligations tend to vary as well. The chances of business tax increasing have also become higher. If you consider leasing, you will lower the overall business operational costs because of reduced expenditures.
You Lose Depreciation Deduction
As much as leasing will help serve your business interests, the downside becomes the loss of depreciation deduction. If a company owns the equipment, it can take a business tax deduction for the depreciation of the said equipment. This is, however, not possible with leased equipment.
You Avoid Further Tax Obligations
One of the benefits of leasing is avoiding related tax obligations. If you are a startup business, finding ways to avoid taxes as you grow is important. When you lease, the tax burden lies with the owner of the equipment or vehicle and not you as the borrower.
You Increase the Chances of Section 179 Tax Advantages
The allowance that comes with the full deduction for a newly purchased asset or equipment in the first year of use is in Section 179 of the Internal Revenue Code. This is also an allowance that your business can utilize from leasing. It also gives you a choice between purchasing and leasing to enjoy the business tax advantage.
Having more information about the business tax implications of leasing is crucial. Get in touch with Emerald Valley Financial Services for further guidance.