Buying vs leasing assets? The answer can be complicated. One rule of thumb: It’s generally better to lease assets that will substantially decrease in value over time. Conversely, if the asset is expected to last longer than five years, the long-term costs associated with leasing may be greater than buying.
Leasing can be advantageous because:
•A smaller initial outlay of cash is required since there’s generally no down payment.
•Lease contracts often come with easier credit terms.
•Payments are generally fully deductible for tax purposes.
•A lease may include maintenance support (although this is reflected in higher lease payments).
Leasing can also be disadvantageous because:
•Over the life of the asset, the cost may be greater.
•You have no equity in the asset, no matter how long you lease it.
•You lose the tax benefit of depreciating your asset (or expensing it under Section 179).
•You are generally committed for the life of the lease.
These are just a few considerations involved in the decision to lease or buy. Before you lock yourself into a contract, examine how it will affect cash flow, taxes and other factors. Contact us. We can help decide whether to lease or purchase business assets. These decisions can have long-term implications.
