Saving Money On Your 2016 Taxes With Equipment Leasing
It’s that magical time of year, when business owners start poring over receipts, agreements, contracts, and other documentation to see where they can save money on their tax returns. Fortunately, the IRS offer big savings for business owners with equipment leasing agreements.
Equipment Leasing and Section 179 Deductibles
According to the IRS, Section 179 of the Tax Code allows all payments on leased equipment to be claimed as deductibles on the tax return, as an off-balance sheet operational expense. It should be noted that the dollar amount that can be deducted caps at $500,000. For most new and small operations, this should easily cover the amount of money paid for equipment leasing, but even for large manufacturing and construction firms, or even medical practices that use highly specialized equipment, $500,000 is still a good amount of savings on the overall cost of leasing the equipment.
Check The Lease
With some equipment leasing agreements, the leasing company retains ownership of the equipment, and only the leasing payments can be claimed as deductibles. However, other contracts are considered Equipment Financing Agreements(EFAs), where the business owners “own” the leased equipment because of a buy out clause that takes effect at the end of the term. Business owners with EFAs can claim depreciation on top of the Section 179 deductible, which (in most cases) easily covers the initial cash layout for equipment leasing.
Consult with an Accountant
When the tax code changed to allow equipment leasing payments to be used as deductibles, very few people picked up on it, unless they were either in the commercial financing industry, or accounting. While big revisions like these do not happen often, there are smaller changes that can allow businesses owners to save even more money on their tax returns. When filing this year, be sure to have an accountant or tax specialist look over your paperwork and deductibles to ensure that all of the numbers add up correctly. Also, be sure to keep records of your equipment leasing agreement, as well as the monthly payments, to stave off the possibility of an audit after a large deductible is claimed.
The Section 179 deductible allows business owners to recoup the money spent on equipment leasing payments each year, which can greatly reduce the amount of taxes they have to pay. If you need assistance in finding out exactly what you need to claim your deductibles, speak with your accountant or consult with a tax professional.