As the year draws to a close, machine shops are reviewing how 2015 went and weighing profits and losses. They’re looking back but also planning for the future; 2016, after all, is not far away.
One consideration for the coming year is whether to acquire new equipment. When determining whether and when to add, decision-makers should not forget to factor tax benefits into the equation. Such benefits can make the fourth quarter a good time to act on needs for additional capital equipment.
Peter K. Bullen of Key Equipment Finance recently wrote on the subject for Modern Machine Shop in an article titled “The Fourth Quarter Is an Ideal Time for Machine Shops to Acquire New Equipment.”
He lays out specific reasons why timing an acquisition to maximize tax benefits might require action before the end of a calendar year, and how purchasing to own may not be the best route to making the most of those benefits.
Bullen explains that the tax code includes an incentive (Section 179) for business investment in capital equipment this year: “In 2015, businesses purchasing $200,000 or less in capital equipment can deduct up to $25,000 of that expense immediately on the 2015 tax return.” This is good for companies buying equipment to own.
Companies that lease equipment instead—since they’re not the tax owners of it—can still maintain the deduction on assets below that threshold, according to Bullen.
In fact, leasing new equipment can provide its own benefits.
Own or Lease
Bullen reminds us that, in the end, “the benefits of new equipment come from using it rather than owning it.” So, one thing shops should weigh is whether they need to own new acquisitions or could get away with leasing them.
For tax purposes, there are differing advantages to each, but Bullen makes an argument in favor of tax leasing. Among other perks, Bullen says that leasing equipment, rather than owning it, can:
exchange tax depreciation for lower payments,
boost Net Operating Loss (NOL) carryforwards or similar tax credits, and
avoid fourth-quarter asset acquisition restrictions such as the mid-quarter convention.
Read more details from Bullen’s article at mmsonline.com.
As always, Techspex is here to help shops to make informed acquisition decisions—even in the fourth quarter.