Tax Benefits of Financing
Posted by David Rhoads on Tue, Sep 29, 2009 @ 06:54 PM
Business Equipment Purchases
Business owners who buy
capital equipment - machinery, computers, and other tangible goods,
usually prefer to deduct the cost in a single tax year, rather than a
small amount over a number of years. Federal tax law lets small
businesses accelerate depreciation under tax code Section 179 for
qualified property.
Benefits of Non-Tax Leases
Non-Tax/Capital
Lease. The benefit of this lease type is the ability to take advantage
of IRC Section 179 and expense up to the amount allowed for the year
that the equipment is installed. You may depreciate any excess on the
depreciation schedule for that particular asset. Examples of this type
of lease include $1.00 Buyout, 10% Purchase Upon Termination (PUT).
Example:
Equipment is financed and put in use in 2008 and the cost is $275,000.
Using Section 179 and assuming a 35% tax bracket, net savings on the
equipment would be:
| Equipment Cost: |
$250,000 |
1st Year Write Off
Section 179
($250,000 is maximum write-off)
|
$250,000 |
50% Bonus
($275,000-$250,000 = $25,000 $25,000 x 50% = $12,500) |
$12,500 |
Regular MACRS
($12,500 x 20% = $2,500)
|
$2,500 |
Total 1 st Year Deduction
($250,000 + $15,000 = $265,000)
|
$265,000 |
Tax Savings Assuming Rate of 35%
($265,000 x 35% = $92,750)
|
$92,750 |
1st Year Bottom Line Equipment Cost
($275,000 - $92,750 = $182,250) |
$182,250 |