For a high-technology item like computer equipment is the lease option preferable from the very outset and why?
This argument has changed thru time as tax and accounting law has evolved. In the past, if you purchased an expensive piece of equipment like a computer (which used to cost about $10k in 1982) and paid for it outright, you had to use standard depreciation tables and could only take a portion of the value each year as a deduction. It might take you 10 years to finally write off that computer even though you through it away 7 years before. This was because a computer at the time cost about as much as a pick up truck and the IRS depreciated many expensive items the same way regardless of their "real" lifespan. (Computer equipment becomes obsolete in a short amount of time lets say compared to a bulldozer or industrial compressor which could last for 20 years or more.)
Leases solved that problem for many companies. Because a lease in really only a long term rental agreement (with a cheap buyout), businesses wrote off every payment as they were made. They didn't have to wait for 10 years or more. They also didn't have to take an accounting hit as the lease was cloaked as "equipment rental" and there was no visible long term liability. This created a huge tax and accounting incentive to lease over buy.
When FASB accounting principals changed a few years ago, leases of computers, car and other expensive items now had to be "capitalized", and the company had to show on their balance sheets a corresponding liability for each lease. This made leasing not as attractive for some businesses already saddled with lots of debt on their books.
Regardless of buy or lease, unless there is a substantial (say 40% or more) residual value, it really doesn't matter. Just be warned that many small item leases have buried interest rates (they call them "factors") of 20% APR or more. So buy it if you want to save money and don't pay an outrageous interest rate just to say you "leased it". The hidden lease charges will usually more than offset any tax advantage.
A lease option is preferable for the following reasons:
1. You are not saddled with obsolescence (typical of a high tech item). You can return the item / upgrade without much trouble (depending on the type of lease).
2. Usually high tech items depreciate very fast - hence if you plan to use the computer equipment for a short period of time, it is a good idea to lease it.
For a high-technology item like computer equipment is the lease option preferable from the very outset Why or why not?
For a high-technology item like computer equipment is the lease option preferable from the very outset?
That's not easily answered, and is more of an accounting question. We need to know: How long you intend to keep the computer What is the "usefull lifetime" of the computer The initial cost The matinence cost The selling price or disposal cost Usually buying is preferable because upgrads can be done cheep if you know where to go. If you have a large business, leasing can be preferable because upgrading and matinence is less…
For a high technology item such as computer equipment is a lease option preferable to buying and why or why not?
Definitely Buying as a general guideline, and in most cases . However, if you plan to use your computer for a short period and then return it, or if for tax expenses purposes, your accountant could tell you that a lease is may or may not be a better way(in your case), because considered as an expense for your business. Do not forget that if you lease, you can choose an option to buy the…
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