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Now is the Time to Consider Fourth Quarter Equipment Leasing

October 2017 / Share

Dave-Malucky As we come into the fourth quarter of 2017, it's a strategic time of the year for businesses to review their financial performance over the past nine months and start to plan for year–end and next year equipment purchases.

One of the most common business reasons why a company might choose to acquire new or update their equipment before year–end is to take advantage of federal tax laws that allow deductions and accelerate depreciation benefits for equipment purchases that qualify under current tax programs. In the fourth quarter, the tax benefits and lower pricing are the most favorable, and it's an ideal time for businesses to lease finance new equipment.

In addition to beneficial tax deductions, the fourth quarter enables businesses to have more affordable monthly payments, conserve cash and lines of credit with maximum flexibility, while also increasing cash flow. Consider the following facts when deciding whether investing in capital equipment in the last quarter of the year matches your company's yearly financial goals.

The IRS tax code under section 179 is an incentive set up by the federal government a few years ago to incent businesses to invest in capital equipment. Effective Jan. 1, 2017, businesses that purchase $2 million or less in capital equipment can deduct up to $500,000. The equipment must be placed into service by Dec. 31, 2017. Both new and used equipment are eligible for the deduction.

Congress also set up under this same tax legislation, for all size of businesses, the ability to use bonus depreciation and depreciate 50 of the eligible equipment cost on their 2017 tax returns. This is the last year companies can use the full 50 percent bonus depreciation in the first year of the lease term. In 2018, the depreciation percentage drops to 40 percent and then to 30 percent in 2019. It is unknown if bonus depreciation will be extended beyond 2019.

For some companies, asset depreciation is an important factor in determining annual capital expenditures. This can be true for equipment intensive industries such as construction, trucking, and manufacturing.

Some companies will benefit more by getting a loan or a finance lease and be able to benefit from tax ownership of equipment and use all available depreciation on their tax returns. However, many businesses with a complex tax situation or other reasons, may want to consider a tax lease where they trade available tax depreciation for a lower monthly payment and interest. In addition, tax leases allow the full lease payment to be deducted as an operating expense and the equipment is kept off the balance sheet.

There are, of course, many reasons companies finance equipment all during the year, but those interested in taking advantage of fourth quarter tax benefits and incentives in 2017 should review their capital equipment needs for the remainder of the year. It is, of course, a good idea to always talk with a tax advisor before making any equipment purchases.

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