Tax Advantages

  • Take a $100,000 deduction! Under IRS Section 179, a business entering into a First Capital $1 Buyout Option Lease, or a finance lease, may deduct up to $100,000 from its taxable income during calendar year 2003. A special advantage of this program is that the business does not need to spend $100,000 during this year in order to claim the deduction. The only requirement to claim the full deduction is to enter a lease agreement during 2003. Smaller leases are eligible for the deduction on a dollar-for-dollar basis.

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  • Deduct 100 percent of your payments. The key component of a Fair Market Value (FMV) lease is that the lessee has the option to return the equipment at the conclusion of the lease without further obligation. The lessee may also have the option to purchase the equipment at its fair market value or to continue leasing the equipment from the leasing company. The lessee does not own the equipment; it is not recorded on the company’s balance sheet as either an asset or a long-term liability. Instead, the leased equipment is generally treated as an off-balance sheet operating expense and is therefore 100 percent tax deductible.
     
  • Accelerate your depreciation. With a bank loan or finance-type lease purchase, you normally recapture some of your cash expenses by claiming depreciation on the equipment and any interest paid on it, according the IRS’ determination of the “useful life” of that equipment. Depreciation for long-lasting equipment, however, can be spread over five to seven years. The same equipment on an FMV lease can be expensed 100 percent during whatever lease term you select. For example, if you enter into a 36-month FMV lease on equipment that would otherwise have to be depreciated over five years, you will have written off all of its value (less residual) in just three years instead of five.
     
  • Avoid the AMT double-tax whammy. Under the Tax Reform Act of 1986, Congress introduced an Alternative Minimum Tax (AMT), which often places an additional tax burden on small- to medium-sized businesses that use equipment depreciation to significantly lower their tax liability. Such companies are now subject to a review that may classify some depreciation write-offs as “tax preferences” and require the companies to pay AMT in addition to the taxes they already owe. Owning or purchasing too much equipment, while traditionally a strategy for lowering traditional tax liability, can now trigger the addition of new added taxes. The good news is that equipment lease payments that are treated as rentals do not qualify as tax preference items and have no adverse effect on AMT liability.