What is an advantage of leasing compared to purchasing equipment outright?

What is an advantage of leasing compared to purchasing equipment outright?

• A. No maintenance cost
• B. Tax deductibility of leasing costs
• C. Higher ownership equity
• D. Lower monthly payments

Answer: (B)

Leasing equipment offers the tax deductibility of leasing costs as a significant advantage over purchasing equipment outright. When a business leases equipment, the lease payments are often considered a business expense, which can be deducted from taxable income. This deduction can provide substantial tax savings that can improve cash flow, especially for small businesses or startups. In contrast, when a business purchases equipment, it generally capitalizes the cost and depreciates it over time. While depreciation provides a tax benefit, the immediate reduction in taxable income offered by lease payments can be more advantageous for maintaining liquidity and financing flexibility. This makes leasing an appealing option for companies that may not have the upfront capital required for outright purchases. Other benefits of leasing, such as potentially lower monthly payments or maintenance by the leasing company, do not necessarily relate as directly to the tax benefits provided by leasing compared to purchasing. Thus, the tax deductibility of leasing costs is a crucial element that distinctly highlights the advantages of leasing in a business financial strategy.

Leasing equipment offers the tax deductibility of leasing costs as a significant advantage over purchasing equipment outright. When a business leases equipment, the lease payments are often considered a business expense, which can be deducted from taxable income. This deduction can provide substantial tax savings that can improve cash flow, especially for small businesses or startups.

In contrast, when a business purchases equipment, it generally capitalizes the cost and depreciates it over time. While depreciation provides a tax benefit, the immediate reduction in taxable income offered by lease payments can be more advantageous for maintaining liquidity and financing flexibility. This makes leasing an appealing option for companies that may not have the upfront capital required for outright purchases.

Other benefits of leasing, such as potentially lower monthly payments or maintenance by the leasing company, do not necessarily relate as directly to the tax benefits provided by leasing compared to purchasing. Thus, the tax deductibility of leasing costs is a crucial element that distinctly highlights the advantages of leasing in a business financial strategy.