What percentage of total expenses does equipment typically comprise and why is the lease/buy decision so important?
About one-third of the $900 billion spent in 2007 on equipment purchases was done under leases. The decision is important because a business needs to make sure it has access to the most efficient equipment at the lowest net cost and the easiest degree of entry with the least negative impact on reporting. Where does depreciation come into play in the buy/lease decision? When it comes to depreciation, a business must ask itself if it can more efficiently use the depreciation against its tax obligation than a leasing company can. This depends on the business’s tax bracket, how profitable it is and how much equipment it has already purchased and is depreciating (alternative minimum tax considerations). It will also depend on current economic stimulus packages the governement is offering (e.g. accelerated depreciation and tax credits). What financing options are available? Businesses may consider the following financing options: • Tax leases • TRAC leases • Operating leases • Finance leases
