Is Leasing the Right Tool for You?
Mary Bixler, AgChoice Accounting Officer
As the year winds down, now is the time to review your year-to-date records with your accountant to discuss tax projections and options for reducing your tax liability. One of the tools that may be an option for you is leasing. Leasing can provide an efficient cash flow and serve as a tax management tool.
Machinery, equipment, buildings, grain bins and fleet vehicles are examples of the types of assets that are generally leased. Below are a few benefits of leasing:
- Accelerated write off. For example, when you purchase a piece of equipment that would normally be depreciated for seven years, leasing provides an accelerated deduction by allowing the amount of lease payment as a deduction against income. The 4th and 40 rule does not apply to leased assets. The 4th and 40 rule means that when 40% of the assets for the year are purchased in the 4th quarter, the law requires that all assets purchased in the year be depreciated using the mid quarter convention method, which results in a minimal deduction.
- Leasing allows for preservation of section 179 for other purchased assets that would qualify for the section 179 expense. The current section 179 expense is limited to $25,000.
- Saving cash. Leasing saves working capital that would otherwise be used to purchase assets.
If you have already made your capital purchases for the year, don’t fret, leasing is still an option using the lease buy back option.
If you are interested in more information regarding a lease, please contact your loan officer or local AgChoice branch.
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