Why
You Should Consider Leasing
Under the terms of a true lease, rental payments are ordinary
and necessary business expenses. These expenses are also deductible,
provided that the lease payments are rent incurred or paid during
the taxable year, required for the continued use of the property,
for property used in a trade or business of the taxpayer, and
for property that the taxpayer has neither title to nor equity
in with respect to the payments. Lease contracts can be written
to provide the lessee with great flexibility, in terms of the
amount and timing of the lease payments.
Below are a dozen typical reasons for leasing.
- Leasing conserves
working capital; leasing normally provides 100% financing.
- Leasing avoids
use of short-term bank lines and conserves borrowing capacity
for financing inventory, accounts receivable, and other short
term needs.
- Acquisition
may be made through monthly budgetary monies, since operating
funds are usually easier to obtain.
- Companies
(and people) are budget driven.
- The approval
cycle for leasing can be shorter.
- Leasing can
provide off balance sheet financing. The equipment will not
be listed as a capital item on the company's balance sheet.
- Leasing protects
against an investment in equipment that has declining value.
Capital funds may then be used for opportunities that create
profit.
- Leasing can
provide a way to acquire equipment that was not forecasted.
- Cash flow
objectives can be satisfied with leasing.
- Leasing can
provide a means of increasing your company's short-term production
capacity.
- Budget justifications
become easier with leasing.
- Leasing can
be used to ensure survival of your company when your industry
is making rapid technological advances.
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