Leasing equipment can be an efficient way for businesses to manage costs and access the latest technology without the upfront expenses of buying. However, navigating the leasing process can be tricky, and without careful consideration, costs can quickly add up. Here are three practical strategies to help you save money in your equipment lease.

1. Negotiate Lease Terms and Conditions

One way to save money on your equipment lease is by negotiating favorable terms and conditions. Leasing agreements are often flexible, and lessors are typically open to discussions, especially if it means securing your business. Here are a few negotiation points to consider:

• Interest Rates: Ensure that the interest rate is competitive. Shop around and use quotes from different lessors as leverage in your negotiations.

• Lease Duration: Shorter lease terms may come with higher monthly payments but could be more economical in the long run. Conversely, longer terms might reduce monthly costs but could end up being more expensive overall. Balance the duration based on your business needs and financial outlook.

• Payment Structure: Negotiate for a payment structure that aligns with your cash flow. Some lessors may offer seasonal payment plans or deferred payment options that can ease financial pressure during slower business periods.

2. Consider a Fair Market Value (FMV) Lease

A Fair Market Value (FMV) lease, also known as an operating lease, can be an excellent way to save money, especially if you plan to upgrade your equipment regularly. With an FMV lease, you have the option to purchase the equipment at the end of the lease term for its fair market value, return it, or extend the lease.

The benefits of an FMV lease include:

• Lower Monthly Payments: Since you’re essentially renting the equipment with the option to buy it at a later date, the monthly payments are typically lower compared to other lease types.

• Tax Advantages: FMV leases can often be expensed as operating costs, providing potential tax benefits. Always consult with a tax professional to understand how leasing can impact your specific tax situation.

• Flexibility: At the end of the lease term, you can decide to upgrade to newer technology, which is particularly beneficial for industries where equipment quickly becomes outdated.

3. Take Advantage of Section 179 Tax Deductions

The IRS Section 179 Deduction allows businesses to deduct the full purchase price of qualifying equipment financed during the tax year. This deduction is applicable to equipment purchased or leased and can result in significant tax savings.

Here’s how you can benefit from Section 179:

• Immediate Expense: Instead of depreciating the cost of the equipment over several years, Section 179 allows you to deduct the full cost in the year the equipment is put into service.

• Lease to Own: If your lease agreement qualifies, you can still take advantage of the Section 179 deduction. This is particularly useful for capital leases, where the intent is to own the equipment at the end of the lease term.

• Stay Within Limits: Be mindful of the annual spending cap and deduction limits under Section 179. For the tax year 2024, the deduction limit is $1,170,000, and the spending cap on equipment purchases is $2,930,000.

Use our free 179 deduction calculator to estimate your tax savings.

Conclusion

Leasing equipment offers a smart, a cost-effective option for businesses. Start by negotiating lease terms, exploring Fair Market Value (FMV) leases, and taking advantage of tax benefits like Section 179. These steps can make a significant difference in reducing your overall equipment leasing costs. It’s always wise to consult with financial and tax advisors to ensure you’re making the most informed decisions for your business’s specific needs.