When you’re thinking about equipment leasing, some tax deductions can be of great benefit to your company, if you know how to use them. For instance, if you prefer to leave the equipment off your balance sheet and simply have the payments expensed, you’ll be able to find a lease with those terms. You’ll also be able to find a lease that allows you to claim a Section 179 deduction so that you can maximize your financial advantage in leasing the equipment. Here are some ways that tax accounting can be beneficial when you’re leasing business equipment.
How the IRS Views Leases
For the most part, the IRS has a set of rules regarding business equipment leases which fall into one of two categories, either a True Tax Lease or a Non-Tax Lease. In a True Tax Lease, the business which is responsible for the lease payments is the equipment owner and is entitled to the tax benefits of ownership, including tax credits and the depreciation which normally occurs. In a Non-Tax Lease, the business owner who is leasing the equipment and using it receives all benefits of ownership and is entitled to take advantage of the Section 179 deduction.
Differences between the two lease types
The IRS will consider any equipment lease to be a Non-Tax Lease if any of the following circumstances prevent it from being viewed as a True Tax Lease:
- the total amount paid by a lessee constitutes a majority of the total sum that would be needed to buy the equipment
- any part of the lease payment accumulates equity in the leased asset
- any part of the lease payment is considered as part of interest on the equipment
- the payment agreement is greater than the fair market rental value
- the lessee will acquire ownership of the equipment after having made some number of rental payments.
Considering Equipment Leasing for Your Small Business?
In many cases, we can help owners of small businesses to acquire the equipment needed to run your business. Contact us at Rexford Commercial Capital, so we can consider some possibilities for financing your equipment.
