Using Section 179 with an Equipment Lease or an Equipment Financing Agreement might be the most profitable decision you make this year.
Why? Because the taxes you save with the deduction will almost always exceed your cash outlay for the year when you combine (i) a properly structured Equipment Lease or Equipment Finance Agreement with (ii) a full Section 179 deduction. It is a bottom-line enhancing tool that allows you to add new equipment, vehicles, and/or software to your business.
Advantages of Leasing and Financing
The obvious advantage to leasing or financing equipment and/or software and then taking the Section 179 Deduction is the fact that you can deduct the full amount of the equipment and/or software, without paying the full amount this year. The amount you save in taxes can actually exceed the payments, making this a very bottom-line friendly deduction (you are reading this correctly; in many cases, the tax savings from the deduction will make your bank account larger than if you never financed the equipment in the first place.)
Leasing & Section 179
Did you know that your company can lease equipment and still take full advantage of the Section 179 deduction?
The main benefit of a non-tax capital lease is that you can still take full advantage of the Section 179 Deduction, yet make smaller payments. With a non-tax capital lease you can acquire and write-off up to the deduction limit worth of equipment this year, without actually spending that amount this year.
In other words, a small business that is managing cash flow can leverage a non-tax capital lease to minimize out-of-pocket cash, and still take the full Section 179 Deduction.
Examples of non-tax capital leases include a ‘$1 Buyout Lease’ and a ‘10% Purchase Upon Termination (PUT) Lease’. In many cases, the amount you save in taxes will be MORE than the total of your first year’s payments.
Equipment & Software Financing – EFAs
You may also obtain an equipment loan using a Section 179 Qualified Equipment Finance Agreement (EFA) and still take the full Section 179 tax deduction.