The time has come for buying new equipment for your Concord, NC small business. It’s an exciting undertaking as it’s a sign that your business is growing and needs more capacity to keep up with sales. But there are more implications for buying equipment than just expansion. You also have to take into consideration the tax implications that come with obtaining a new piece of equipment as well as the financial ones. Here’s a look at how a Charlotte, NC business accountant can help you make your next equipment purchase.
Looks at Your Financials Before Buying
One of the jobs of an accountant is to take a look at your bigger financial picture. That is, the CPA goes through your historical balance sheets and looks at money inflow and outflow patterns. The purpose of this is to identify the times of year that you spend more money than you take in and vice-versa. Some businesses have a steady year-round inflow/outflow pattern while other businesses have ups and downs that even out over time. The CPA can then use the information to tell you if it’s a good time or not to buy equipment. You may be advised to wait until income increases and you can adapt the monthly payments into your accounts payable, or you’ll be advised to go ahead and buy.
Buying Versus Leasing
You may prefer to buy your equipment instead of leasing because of the advantages of ownership over leasing. However, there are also advantages to leasing. There are tax benefits for leasing and buying which can complicate the decision of which avenue to take. This is where your Charlotte, NC business accountant comes in to play as she can help you make the decision that makes the most sense for your business.
The business accountant helps you understand your choices by walking you through different buy or lease scenarios. Leasing can be of benefit as a “try before you buy” option via a short-term lease. If you don’t like the equipment, you can return it at the end of the lease and avoid the need to make payments while you try to sell it. Or you know that you want to buy the equipment because you’re familiar with its operation and want to have it as a business asset. Owning the equipment turns it into asset and adds to the overall value of the business if you ever want to sell.
Tax Benefits of Buying and Leasing
Both leasing and buying come with tax benefits for the business, but in different fashions. The payments you make for leasing equipment are 100 percent deductible as long as the contract is written as a lease and not a lease-to-own. Entering into a lease-to-own transaction is considered the same as an outright purchase by the IRS. When you lease equipment, you have to make sure that the contract is written in such a way that the equipment is returned to the lessee at the end of the contract term. You can still deduct the monthly lease payments as rent and reduce your overall tax liability.
Buying equipment allows you to reduce your tax liability through value depreciation of the item. When you buy an item new, it depreciates in value over time. The IRS allows you to take that depreciation in value as a deduction on your income for up to five years. However, your equipment may qualify for a Section 179 deduction. This type of deduction allows you to depreciate up to $1 million of a qualifying equipment purchase in a single year with a total equipment purchase of $2.5 million for the year. It’s best to discuss depreciation advantages with your Charlotte, NC, business accountant to further understand the implications of Section 179 and standard depreciation over time.