To Purchase or to Lease? The Ultimate Question for Business Equipment

Equipment represents a significant expense for many businesses, whether it’s computers, manufacturing machinery, or vehicles. However, the decision that seems easiest at first glance may actually result in higher costs in the long run. Let’s delve into some key factors to consider when determining the best course of action for your business.

Start Your Free Trial Bookkeeping Tax Services: Xendoo US

Accounting Tax Services: Countingup UK

Cost Considerations 

Acquiring equipment through outright purchase necessitates a substantial initial investment. If funds are limited, opting for a lease agreement with monthly payments might be more manageable from a budgeting perspective. Nonetheless, it’s important to note that leasing generally incurs higher costs over an extended period.

When you own the equipment outright, you have the option to sell it later and recoup a portion of the initial cost. In contrast, leased equipment can be exchanged for newer technology or to align with evolving business needs.

In situations where buying is preferred but finances are a constraint, obtaining a loan that utilizes the equipment as collateral could be a viable solution. Equipment financing often offers attractive benefits such as low-interest rates and affordable payments, allowing you to enjoy the best of both worlds.

Consideration of Shelf Life 

Leasing becomes an attractive choice when dealing with equipment that requires frequent updates due to heavy wear or rapid advancements in technology. However, it’s important to carefully review the lease terms to avoid being locked into retaining outdated equipment longer than desired.

Additionally, leasing is usually the preferred option when the equipment is only needed for a short period or specific project. In such cases, most business owners opt not to purchase and store something that will only be utilized sporadically throughout the year.

Freedom of Product Selection 

The advantage of purchasing equipment is the ability to choose exactly what you need and even customize it to suit your specific requirements. Conversely, when leasing from a company, your options may be more limited.

On the other hand, since leasing doesn’t entail a significant financial commitment, it can encourage you to explore and experiment with new products and technologies.

Maintenance Responsibilities 

When you own the equipment, you bear the responsibility for repairs and upkeep. This includes the need to carry insurance, adding an additional expense. In the event that the equipment is beyond repair and unsellable, it becomes a total loss. Nevertheless, you have the flexibility to have it fixed according to your own schedule and specifications.

With leased equipment, the leasing company assumes the maintenance obligations. While this relieves you of the associated expenses, it also means relinquishing control over the timing and manner in which repairs are conducted. Furthermore, you may be held liable if the equipment sustains damage.

Tax Implications 

Leasing equipment typically qualifies as a 100% tax-deductible operating expense under the 179 IRS Tax Code.

On the other hand, purchased equipment may or may not be eligible for tax incentives. Consulting with an accounting professional is advisable to determine the specific tax benefits. Even if no incentives apply, you can still claim deductions for depreciation. Additionally, the timing of your purchase can have an impact on your tax return.

Xendoo specializes in assisting clients in making informed decisions regarding equipment acquisition — whether through purchase or lease. They offer guidance in clarifying the long-term and short-term costs and benefits associated with each option, as well as help in strategizing tax-related matters. Recognizing that every business is unique, Xendoo provides personalized attention and expertise to meet your specific needs.

FAQ

Q: What factors should I consider when deciding whether to buy or lease business equipment? 

A: When making this decision, it’s important to consider factors such as cost, shelf life, product selection, maintenance responsibilities, and tax implications.

Q: Is it better to buy or lease equipment if money is tight? 

A: If funds are limited, leasing equipment with a monthly payment may be easier to budget for. However, leasing generally costs more over the long term compared to buying.

Q: Can I sell leased equipment? 

A: Leased equipment cannot be sold directly since you don’t own it. However, you may have the option to trade it in as new technology emerges or your business needs change.

Q: What if I want to buy but don’t have enough money? 

A: If you want to buy but lack the funds, you can consider obtaining a loan that uses the equipment as collateral. Equipment financing often offers low-interest rates and affordable payment options.

Q: When should I choose leasing over buying? 

A: Leasing is a good choice when you need equipment that requires frequent updates due to wear or evolving technology. It’s also suitable for short-term or special projects where owning and storing the equipment wouldn’t be practical.

Q: Can I customize leased equipment to my needs? 

A: Leased equipment generally has limitations on customization. If customization is important to you, purchasing the equipment outright gives you the freedom to choose and customize according to your requirements.

Q: Who is responsible for equipment maintenance and repairs? 

A: When you own the equipment, you are responsible for repairs, upkeep, and insurance. With leased equipment, the leasing company typically handles maintenance, relieving you of the associated expenses.

Q: Are there any tax benefits to leasing or buying equipment? 

A: Leasing equipment is usually 100% tax-deductible as an operating expense. Purchased equipment may qualify for tax incentives or depreciation deductions, but it’s advisable to consult with an accounting professional for specific guidance.

Q: How can Xendoo help with equipment decisions? 

A: Xendoo specializes in providing guidance on whether to buy or lease equipment. They help clarify the costs and benefits of each option, including tax strategies, and offer personalized attention and expertise to meet your business’s unique needs.