While leasing and financing will often come with their fair share of benefits for business owners in need of equipment and investors looking to acquire real estate. They also present different merits for tax write-offs. This means that purchasing your machinery or choosing to finance your real estate will have a different outcome than when you decide to lease it.
Check Your Lease Payments
If you opt to lease equipment, you get the benefit of fully deductible lease payments. This means you can write off whatever you pay as long as you are leasing. While this option seems favorable, it will only prove worthwhile if your lease is more than your purchase cost. If, for instance, your leasing fee is lower than your financing, you only get a portion of the tax write-offs you would have got in the long run. Lease payments also tend to last for long periods, limiting your ability to benefit from equity.
Depreciation and Luxury Automobiles
The IRS considers any car weighing less than 6,000 pounds a luxury vehicle, a factor that limits the amount of depreciation that car owners can claim. This means that if you buy any truck, van, or car under this limit, you cannot depreciate more than $23,000. If, however, you lease a vehicle, the IRS allows you to depreciate more than this amount. With this, you get more tax write-offs, helping you get a better deal for your business.
Claiming Section 179
Certain items can be claimed as expenses in section 179 upon purchase, allowing you to get more tax write-offs. These include financing tangible personal property such as vehicles, computers, and machines. With this in mind, you can claim your entire write-off at a go while still benefiting from a deduction of interest from your purchased assets.
Consider Interest and Depreciation
If you decide to finance an asset for your business, you typically have the option to claim your deductions from two points of interest. The first is your interest, where you can deduct your interest payment as a business expense. The second option allows you to depreciate the asset yearly and write down its value to reduce your taxes for better tax write-offs.
Whether you plan on leasing or financing your assets, Park Cedar Commercial Lending has you covered. We can help you get the right financing to help you get the most out of your tax write-offs.