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Benefits of a Non-Tax/Capital Lease
Business owners who buy capital equipment - machinery, computers, and other tangible goods, usually prefer to deduct the cost in a single tax year, rather than a little at a time over a number of years.The benefit of a Non-Tax or Capital Leases is that they can take advantage of Section
179 and expense up to the amount allowed for the year the equipment is installed. You may depreciate any excess on the depreciation schedule for that particular asset. Examples of this type of lease include $1.00 Buyout and 10% Purchase Upon Termination (PUT) leases. Since tax situations differ, please consult a tax advisor about the specific benefits on your business.
Tax Code Section 179 & Election to Expense
An expense deduction is provided for taxpayers (other than estates, trusts or certain noncorporate lessors) who elect to treat the cost of qualifying property, called Section 179 property, as an expense rather than a capital expenditure. Under tax code Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-Tax leases qualify for this deduction in the year of inception. Any excess above the expensed amount can be depreciated depending on the equipment. The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed
by law. The total cost of property that may be expensed for any tax year cannot exceed the total amount of taxable income during the tax year. Section 179 property is property that you acquire by purchase for use in the active conduct of your busuiness. To ensure property qualifies, reference Publication 946.
Benefits of a Tax Lease/True Lease
This lease type is where the lessor retains ownership and as the lessee, may be allowed to claim the entire amount of the monthly investment as a tax deduction. Many rental contracts qualify as a true lease including a 10% Option and a Fair Market Value lease. Example: Monthly investment is $ 1,000, term is 36 months. Assuming a 35% tax bracket, the monthly tax savings would be: $1,000 x .35 = $350.00. Total tax savings over the term of the contract would be $12,600.00.
Section 179 Deduction: Until further notice the Section 179 Tax Deduction will be permanent at the $500,000 level. Businesses exceeding a total of $2 million of purchases in qualifying equipment have the Section 179 deduction phase-out dollar-for-dollar and completely eliminated above $2.5 million mark. The Section 179 cap will be indexed to inflation in $10,000 increments in future years.
The 50% Bonus Depreciation will be extended through 2019. Businesses of all sizes will be able to depreciate 50 percent of the cost of equipment that is acquired and put in service during 2015, 2016 and 2017. Then bonus depreciation will phase down to 40 percent in 2018 and down to 30 percent in 2019.
For more information you contact your tax advisor or visit