Posts Tagged ‘cutting cost’
Renting Business Equipment and Your Bottom Line
Monday, February 25th, 2008
Starting and running a successful business is expensive. To defray costs associated with business equipment, the ability to rent, rather than purchase outright, is an option exercised by business owners. Upfront costs to procuring business equipment, such as computers, copiers, printers, and furniture, are much lower by renting than buying. However, the tax ramifications can hurt when Uncle Sam comes asking for his check. Here is a look at how the two business equipment procurement strategies differ.
There are two main benefits of renting business equipment rather than owning. First, renting may be the only way a new business can afford start up costs. Also, maintenance and upkeep of the equipment is not the business owner’s responsibility. If the copier breaks, or the computer crashes, it’s most likely on the rental company’s shoulders to handle the costs of repair.
Damage due to the negligence of employees using the rental equipment is the business owner’s responsibility, and a hefty repair or replacement bill could unexpectedly wreak havoc on the business’ expense report. The equipment renter may also be at the mercy of the rental company to schedule maintenance and repair, and that could impact productivity.
For federal tax purposes, renting business equipment is not going to net the same amount of tax deduction than just outright ownership. Rental fees may be written off as a deduction, but business owners then cannot deduct the maintenance and repair bills, or depreciate the equipment. For state tax purposes, this could help alleviate the bill of any personal property tax. Some states impose a yearly tax of as much as 10% on the fair market value of all business equipment, furniture, and fixtures for the life of the items. This tax would be the responsibility of the rental company. A business renting the equipment may still be subject to state sales tax on the rental cost.
Beware of rent-to-own business equipment scheme! A business renting office equipment will pay far more in rental fees than if it had simply financed the equipment outright. Paying rental fees also won’t help the business’ credit rating. Financed business equipment also offers a tax deduction for the interest on the loan. There are just not many advantages to a rent-to-own plan.
Renting business equipment and computers should not be done to only keep startup costs low. Long-term tax considerations, and also asset acquisition must be weighed. When renting business equipment, at the end of the lease, a business does not have an asset to show for the sum of all rental fees. Technological equipment like computers and cell phones may be best rented if there is expectation the equipment will be regularly updated to remain competitive and productive. Just be prepared to re-negotiate rental fees when upgrades occur. Stay vigilant with regard to all contract terms, as well as rental and financing, to keep the arrangements in favor of your business’ bottom line.
Tags: advice, buget, cutting cost, Rebecca Button, renting business equipment, saving money
Posted in News & Articles | No Comments »