Last week we looked at the benefits leasing IT equipment offers businesses – predictability of costs, tax advantages of operating expenses, staying current, and remaining competitive. Now we turn our focus to buying and look at the advantages of paying upfront for your IT equipment. Which method is best for your business depends on a number of factors and you should carefully weigh the benefits of both approaches before making your decision.
Here’s a look at some of the benefits that buying IT equipment offers over leasing.
Cheaper in the long run – Though it may seem like a steal at first – getting brand new, top of the line servers that you normally couldn’t afford – leasing is almost always more expensive in the long run. The payments add up and at the end of the term, you still don’t own the equipment. Leasing companies usually let you purchase the items you leased once the contract expires, but normally the price is high considering the sum of the payments you already made during the term and given the fact that the equipment is already a few years old.
Ease – Buying is much more straightforward than leasing. You simply choose what you want and purchase it. Leasing, on the other hand, requires a lot of paperwork. Leasing companies usually require up to date financial records and they may decline you if they feel you could be at risk of defaulting on a payment. Negotiating contract terms can also be complicated and less experienced negotiators may end up stuck in a lousy contract. All this of course adds time to the acquisition process, which can be a significant drawback for businesses needing a rapid rollout.
No maintenance schedules – Some leasing companies have stringent requirements that go along with signing a contract. They may require you to adhere to a strict maintenance schedule that not only costs a lot, but can also interfere with operations, depending on the frequency and extent of the maintenance. The contract may also stipulate that only the leasing company or one of its partners may conduct the maintenance. When you buy equipment upfront, you’re free to choose your own maintenance schedule and service provider.
Tax advantages – In our look at the benefits of leasing, we discussed the tax advantages that leasing offers. Buying also offers some positives come tax season that should not be overlooked. Section 179 of the Internal Revenue Code allows businesses to deduct the entire cost of some newly purchased IT equipment in the first year. For example, if you are in the 30% tax bracket and you purchased $100,000 in IT equipment this year, the net cost is only $70,000.
Depreciation deductions – Though not all IT assets are eligible for depreciation deductions, the ones that are help to save on taxes at the end of the fiscal year. As equipment loses its value over the months, businesses are allowed to claim the depreciation, lowering the amount of taxes they have to pay over the lifetime of the asset.
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