Is it better to buy or lease business 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. Coversely, 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).

On the other hand, leasing also has disadvantages, such as:

  • 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.

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