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Leasing
101 > Leasing
Wisdom > Impact
on the Balance Sheet > Electronic
Payment Convenience > Tax Savings
> What is Leasing
> Frequently Asked
Questions
Tax Savings could result from Leasing
Leasing new equipment instead of purchasing
it in the last quarter of the tax year could save you a lot
of frustration at tax time. Here's why. The IRS has different
rules for computing depreciation deductions when 40 percent
or more of a business' equipment is placed in service in the
last three months of any tax year.
Most producers and agribusinesses are aware
that they may only take a half-year's depreciation deduction
in the year an asset is first placed in service. However,
you may not be aware that when 40 percent or more of equipment
purchased during a tax year is placed in service in the last
quarter, the IRS imposes the "mid-quarter convention."
The mid-quarter convention allows only 1-1/2 months depreciation
for the equipment placed in service in the last quarter. Depreciation
deductions for other equipment placed in service that year
are based on the number of quarters that it has been in service.
Taxpayers who file quarterly estimated taxes,
assuming half-year depreciation, could find themselves recomputing
prior tax estimates and making adjustments for fourth quarter
tax payments. Total annual depreciation deductions often allowed
under the mid-quarter convention are generally lower, resulting
in lost tax benefits.
If you will be acquiring a significant amount
of equipment toward the end of the year, leasing might be
your best financing option. With the right kind of a lease,
you can simply deduct your lease payment as an operating expense
and avoid the whole depreciation deduction issue. It's a good
idea to consult with your accountant regarding the most tax-effective
financing alternative.
But awareness is half the battle. So, plan ahead
to ensure that fourth quarter purchases won't invoke the IRS's
wrath.
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> What is Leasing?
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