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Equipment Leasing Tax Advantages

As of the 2003 calendar year, the program in I.R.S. Section 179 states that entering into a one dollar buyout option lease (Finance Lease) may deduct up to a total of $100,000 from their calendar year 2003 income. As well, your business need not spend $100,000 this year in order to claim the amount, but instead enter into a lease agreement during this calendar year. Leases smaller than 100,000, of course, are eligible for tax deductions on a dollar-for-dollar basis, providing annual deductions do not exceed your total tax liability. Contact us here for more details.

Fair Market Value Leases - 100% Tax Deductible Payments

The key benefit of the Fair Market Lease is that the lessee has the option to return the equipment once the lease concludes, without any further obligation. The other option, of course, is to purchase the equipment for its fair market value, or continue to lease the equipment from the lessor. Using a FMV lease, the equipment is not recorded as an asset, nor does it become a long-term liability, and instead can be treated as an off balance sheet operating expense. Thus, FMV lease payments are 100% deductible.

Accelerate Depreciation With Leasing

When purchasing equipment either through cash, loan or with a finance lease (one dollar option), cash expenses can be recovered by claiming equipment depreciation according to IRS "useful life" rules. In most cases, you can also claim interest portions as expenses as well. This depreciation may last anywhere from five to seven years in this case.

With a Fair Market Lease, you can expense 100% of your equipment during the lease term you select. As an example, a 36 month FMV equipment allows you to write off the full expense of the item within three years, as opposed to its whole value, which could take five years.

Avoiding AMT Double Taxation

With the US Tax Reform Act of 1986, Congress targeted small and medium size businesses that had claimed depreciation on equipment, thus lowering tax liability. In effect, they ensured that companies who use depreciation to greatly lower tax liabilities are subject to review. This review does enable the IRS to classify some depreciation writeoffs as what is known as "tax preferences", and insist on an additional Alternative Minimum Tax, or AMT. The result is that owning or buying too much equipment can now trigger new taxes!! With equipment leasing, however, payments are for tax reasons the same as a rental fee, and thus do not qualify as tax preferences, and thus are ineligible for AMT.

Do you have other questions about taxation and leasing? Contact us here. Or apply for an equipment lease here.

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