Buy vs. Lease: Business Equipment Edition
Does your company typically buy equipment or lease it? This is a critical decision for every business owner, and it calls for regular re-evaluation.
Life presents us with many choices: paper or plastic,chocolate or vanilla, regular or decaf. For businesses, a common conundrum isbuy or lease. You’ve probably faced this decision when considering office spaceor a location for your company’s production facilities. But the buy vs. leasequandary also comes into play with equipment.
Pride of ownership
Some business owners approach buying equipment likepurchasing a car: “It’s mine; I’m committed to it and I’m going to doeverything I can to familiarize myself with this asset and keep it in tip-topshape.” Yes, pride of ownership is still a thing.
If this is your philosophy, work to pass along that pride toemployees. When you get staff members to buy in to the idea that this is yourequipment and the success of the company depends on using and maintaining eachasset properly, the business can obtain a great deal of long-term value fromassets that are bought and paid for.
Of course, no “buy vs. lease” discussion is complete withoutmentioning taxes. The Tax Cuts and Jobs Act dramatically enhanced Section 179expensing and first-year bonus depreciation for asset purchases. In fact, manybusinesses may be able to write off the full cost of most equipment in the yearit’s purchased. On the downside, you’ll take a cash flow hit when buying anasset, and the tax benefits may be mitigated somewhat if you finance.
Fine things about flexibility
Many businesses lease their equipment for one simple reason:flexibility. From a cash flow perspective, you’re not laying down a majorpurchase amount or even a substantial down payment in most cases. And you’renot committed to an asset for an indefinite period — if you don’t like it, atleast there’s an end date in sight.
Leasing also may be the better option if your company usestechnologically advanced equipment that will get outdated relatively quickly.Think about the future of your business, too. If you’re planning to explore anexpansion, merger or business transformation, you may be better off leasingequipment so you’ll have the flexibility to adapt it to your changingcircumstances.
Last, leasing does have some tax breaks. Lease paymentsgenerally are tax deductible as “ordinary and necessary” business expenses,though annual deduction limits may apply.
Pros and cons
On a parting note, if you do lease assets this year and yourcompany follows Generally Accepted Accounting Principles (GAAP), new accountingrules for leases take effect in 2020 for calendar-year private companies.Contact us for further information, as well as for any assistance you mightneed in weighing the pros and cons of buying vs. leasing business equipment.