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Buy or Lease?

The answer is: Do whichever is cheaper or better for your business.

The first thing I do not want you to consider is the tax question. Here is why: Let's say that you are comparing buying a piece of equipment for $10,000 or leasing it for $210 a month for five years. If you buy it, you can deduct the $10,000. If you lease it, you can deduct the $210 per month. Sometimes there are a few other rules that speed up or slow down when you can deduct it, but until you begin to approach costs in the tens of thousands of dollars, it really makes very little difference in the life of your business.

I know that the "lease people" tell you how much of a tax advantage leasing is over buying. If you have one of these salesmen, tell him to phone or e-mail me. I will explain to him how he is wrong. I will also complain that he is misleading you.

Rule: Make a business decision, not a so-called "tax decision."

COMPARISON WORKSHEET

Step 1: Enter the cost if you buy the item outright. Include future maintenance. If you finance, multiply the monthly note times the total number of payments and add any downpayment.

1.______________________________

Step 2: Enter the number of months before you need to replace the item.

2.______________________________

Step 3: Enter the average monthly lease payment.

3.______________________________

Step 4: Multiply line 2 times line 3.

4.______________________________

If line 1 is less than line 4, then buying is probably your better business decision.
If line 4 is less than line 1, then leasing is probably your better business decision.

It might be cheaper to buy, but you might want to lease anyway. Is the newer item important to your business image? Is it much more costlier to use the item when it is older than when it is new? Is it important to your personal comfort to have the newer item? If so, compare the difference of line 4 less line 1. You might be worth the added cost.

See a similar article called Replace or Repair?

Copyright © - 2002 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

September 12, 2002