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Smart Business Buys to Make Before the End of the Tax Year

by Benefits of LeasingBusiness AdviceWhat about Taxes?

And Lower Your Tax Liability

October marks the start of the 4th quarter and the beginning of the end of the tax year for many business owners. If you’ve been considering making purchases for your business, this might be the right time to buy. Your business benefits from having the goods or services available now, and your expense write offs can reduce your tax liability for this year.

Having worked with businesses since 2009 to provide equipment financing in several industries, here are our recommendations for smart end-of-the-year business buys.

Commercial Vehicle(s)

If you’re considering buying or lease financing a commercial vehicle, now’s a good time to sign on the dotted line for a couple of reasons. Year-end sales get underway. Dealers are anxious to make room on their lots for new vehicles, and they tend to heavily discount their vehicles to meet annual sales goals. If you’re able to negotiable the purchase or lease price down further, the deal gets better, especially if you’re purchasing or lease financing multiple commercial vehicles.

Lease financing before the end of the year provides certain tax advantages. What those advantages are depends on whether you choose a capital or an operating lease. You can write off the vehicle’s depreciation under a capital lease. You can treat lease payments as an operating expense under an operating lease.

LEARN MORE: FREQUENTLY ASKED QUESTIONS ABOUT COMMERCIAL VEHICLE LEASING & LEASE FINANCING

Large Equipment

It is possible that you can write off business equipment, like a forklift, buncher feller, boom trucks and tank trucks, to name a few. Again, the tax advantage depends on the type of lease you choose, operating or capital. Either way, lease financing new or additional equipment can help you improve and expand your business operations so that next year could be the best year yet for your business.

Heavy equipment dealers often share the same mindset as vehicle dealers in that they want to meet annual sales goals and make room for new equipment. From now through the end of December, you can find great deals on equipment. Get a head start by filling out a credit application for your lease financing and check our equipment for sale.

Car or Truck

It’s common for smaller businesses owners to purchase a car or truck to use for both business and personal reasons. The same logic applies as to why the end of the year is a good time to buy or lease finance a car or truck. Check with your tax consultant as to the advantages and strategies to reduce your tax liability when using a personal car for business.

Professional Consulting/Advisory Services

This of all years has been one of massive changes. To best navigate these twists and turns while positioning their business for the future, company owners are seeking professional counsel in a multitude of areas, like sales and marketing, communications, technology, human resources, legal issues and taxes. Joining an executive coaching group or community chamber is an alternative to connect with and learn from others facing similar situations.

Not only can professional consulting or advisory rates and membership fees be written off your taxes, but the advice and guidance gained from participating can help you run and grow business.

Employee Training & Continuing Education

Investing in training and continuing education for your employees at the end of the tax year makes a lot of sense for many business owners, especially if 4th quarter is a traditionally slow period in your industry. Better trained employees can only make your business stronger and put you ahead of competition, not to mention help start off the new year in a better position to improve job performance.

LEARN MORE: HOW TO ATTRACT QUALIFIED OPERATORS TO MAKE THE MOST OF YOUR FINANCED EQUIPMENT

The costs associated with additional training and continuing education for your employees can be deducted from your taxes as long as the education applies to the employees’ position. Meaning, you can write off safety training for heavy equipment operators, but you couldn’t write off training them as IT technicians unless it directly applies to their job description. There are educational opportunities are available online and many are offered as a subscription, allowing employees to learn at their own pace.

These are just a few smart buys that improves your business and can lower your taxes. There, of course, are others, but in terms of “moving the sales needle,” these can’t be beat based on our experience working with business owners to finance equipment.

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Understanding Property Taxes on Your Leased Equipment

by What about Taxes?

No one enjoys paying property taxes on their leased equipment or otherwise. But, business owners do enjoy the impact that the equipment has on their productivity, efficiency and sales. If your company leases equipment, you may be wondering who’s responsible for paying the property taxes on it and if there is anything else you should know about the process. The following information is important for Global Financial & Leasing Services (GFLS) clients to know.

Who pays property tax on leased equipment?

The one whose name is on the agreement or as the owner of the business leasing the equipment is responsible for the property tax payments on the leased equipment.

However, the company you’re leasing from will be the middleman. For example, if you lease from GFLS, we receive the tax bill and pay it—and then you would reimburse us through a debit transfer from your bank account.

The reason that GFLS receives and pays for the bill directly is because we are the legal owner of the equipment being leased. This means that we’re responsible for reporting it to your local taxing jurisdictions and ensuring it’s paid on time, which brings us to the due date.

When are property taxes due?

Each state’s property tax due date is different, so it’s a good idea to verify the deadline in your state.

When GFLS receives the tax bill for the equipment you’re leasing, our team will send a copy of the bill to you at the address we have on record. We also will remind you that the tax amount will be deducted from your bank account.

Because we initially pay the property tax bill, you benefit from a little extra time. Having a few extra days to make that payment can make a big difference for a business owner and his or her cash flow. We also offer payment plans so that you don’t have to reimburse the entire bill to us at once—you can pay incrementally, which can reserve cash for your business.

Should my accountant be involved?

Sure! Although who pays property tax on leased equipment is clear, it’s important to many business owners for their accountant to be aware of and on the same page about all things financial.

As the property owners, we will set up, process, and post all property tax accounts and bills—so your business accountant won’t be doing this; we will. This cuts down on your accounting expenses because if you had to pay the property taxes directly, you would have to pay for your accountant’s time.

What other details will I be given?

When it comes to taxes, clarity and organization are key. That’s why we not only notify you about the property tax; we also verbally review the lease agreement with you so that there are no surprises about property taxes or otherwise.

Why is a responsible equipment leasing provider so important?

We know that your equipment is important for your business, and so is paying property taxes correctly and promptly on it. We take this responsibility very seriously, and we want you to know that we always pay on time.

At Global Financial & Leasing Services, we are happy to answer questions you may have about property tax on your leased equipment. Our goal is to make the tax-paying process as smooth and stress free as possible!

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The Tax Implications of an Operating Lease

by FinancingWhat about Taxes?

The Tax Benefits of an Operating Lease Depends on the Asset Leased

While capital leases and their tax advantages are in the spotlight due to changes in the Section 179 deductions for 2018, operating leases may still offer tax benefits depending on the type of asset leased. Under an operating lease, the lessor maintains ownership of the asset and the associated deductions, while the lessee deducts lease payments as an operating expense and records those payments on the Profit & Loss statement as they’re paid or incurred.

The ability to deduct payments on an operating lease as an operating expense is one of the most popular tax advantages of this lease type. However, an operating lease’s tax advantages depends on the type of asset you lease.

You might see a greater tax break from the direct expense of each lease payment if the equipment (asset) you’re leasing is anticipated to become obsolete before the entire value can be depreciated off your books. Internal Revenue Service (IRS) regulations determine the amount of depreciation that can be expensed, and the IRS dictates the lifespan of the equipment under normal use.

Another advantage is that you can offset operating expenses dollar for dollar against income earned, reducing your net profit, and thus, your tax obligation.

Read: How do capital lease tax advantages compare?

Whether your equipment lease is classified as a capital or an operating lease has significant implications. Your business’s tax situation is unique to you and your company, so you must determine what classification is most beneficial for your business. The most common distinction being that capital leases allow you now to deduct the full purchase price of equipment in the year it was put in use, while operating leases allow you to deduct lease payments as operating expenses for the term of the lease, reducing your taxable income.

As with all business transactions, a trusted professional can help you determine which type of lease will provide you with the maximum tax advantages based on your goals and financial situation. Global Financial & Leasing Services (GFLS) has been providing financial resources to help small and mid-sized companies gain the equipment they need to grow since 2009. Our team is known for looking beyond credit scores and history to find financing that works for you. Have a question about equipment financing? Contact us.

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The 2018 Tax Advantages of a Capital Lease

by FinancingWhat about Taxes?

Section 179 Changes Encourage Small Business Owners to Invest in Their Businesses Sooner Versus Later

Changes in Section 179 of the Internal Revenue Service (IRS) tax code take effect for the 2018 tax year. These changes are anticipated to benefit the bottom lines of those who can now deduct the full amount of equipment financed through a capital lease in the tax year it is placed into service compared to depreciating its value over several years.

Under Section 179, there are requirements that must be met in order to deduct equipment’s full purchase price from your gross income in 2018.

  • The equipment must be used more than 50 percent for business.
  • The capital lease must meet what the IRS considers a capital lease for tax purposes, falling under these four criteria:
  1. Ownership of the leased equipment transfers from the lessor to the lessee at the end of the lease.
  2. There is an option at the conclusion of the lease to buy the leased equipment below its fair market value on the date of the lease’s termination.
  3. The term of the lease is in excess of 75 percent of the useful life of the leased property.
  4. The net present value of future lease payments exceeds 90 percent of the fair market value of the leased property at the start of the lease.
  • If a lease does not meet the criteria of a capital lease, the IRS treats it as an operating lease. The lease payments are considered operating expenses and recorded on your Profit & Loss statement when paid or incurred.

If your lease meets the requirements of the IRS’s capital lease definition, now what? You can deduct the full purchase price in the year it’s placed into service. In many cases, the tax savings from this year-one deduction will boost your bank account balance more so than if you hadn’t financed the equipment in the first place. Meaning the amount you save in taxes can exceed the amount you spend on lease payments.

An example of how this bottom-line friendly deduction plays out in reality:

  Equipment cost: $400,000
  Section 179 deduction: $400,000
  Adjusted basis: $0
  1st year depreciation: $0
  (Assumes double declining ½ year convention)
  Final adjusted basis: $0
  Total 1st year deduction: $400,000
  (Assumes 35% tax bracket)  
  Equipment cost after savings: $260,000
  Percentage discount due to tax savings: 35%

There are a few limits…

The amount that can be written off is $1 million in 2018. On purchases over $2.5 million, the Section 179 deductions decrease dollar for dollar. After the Section 179 benefits are exhausted, bonus depreciation of 100 percent can now be taken until 2022 on the remaining amount of equipment placed into service.

Calculate your tax savings based on your equipment cost here.
Visit section179.org to learn more about the Section 179 deduction.

Bottom line: The specific wording and terms of your lease contract could mean the difference between capitalizing an asset or taking a direct deduction for lease payments. Therefore, determining the classification (capital or operating) of a lease before the lease is signed can be a crucial tax planning tool and help you generate maximum tax savings.

If the time is right for you to invest in equipment to grow your business and reap maximum tax savings, talk to us at Global Financial & Leasing Services (GFLS).

When to Prepare for Annual Property Taxes?

by What about Taxes?

Don’t Wait Until the End of the Year to Prepare for Annual Property Taxes on Leased Equipment

Let’s start at the beginning for those new to leasing equipment. Property taxes are owed on leased equipment. In most states, property taxes are due by December 31, though there are a few exceptions depending on where your business is located.

Since the equipment is leased through GFLS Services, your equipment financing provider, we retain title of ownership and we are responsible for reporting all equipment to your local taxing jurisdictions, as well as ensuring the property taxes are paid on time. Once we receive the tax bill on your leased equipment, our team sends a copy to you, the lessee, along with a notice that the tax amount will be deducted from your bank account.

Simply put, we receive and pay the tax bill, in turn you’ll pay GFLS Services back through an ACH (debit transfer) from your bank.

Nobody likes end-of-the-year tax surprises, so the GFLS Services team not only includes detailed information about leased equipment property taxes in lease agreements, but also verbally reviews it with you so you know exactly what to expect. Even though tax bills vary from state to state, once you receive the notice about your first one, we recommend you record that date to keep in mind for future financial planning.

The Legality and Benefits of Your Equipment Financing Provider Managing the Property Taxes

Legally, it is GFLS Services’ responsibility to pay the property tax bills on equipment owned by us, but leased to our clients. We take that responsibility seriously and always pay on time.

But doing so also means additional benefits for the lessee. It is one less bill for you to track a payment date. And, it could give you a little financial wiggle room. Initially, the property tax payment comes directly out of our pocket. Since we pay the bill first, this gives you a few days cushion which makes a big difference for businesses dealing with slow accounts receivables or strained cash flow. Unlike taxing jurisdictions, we’re able to set up monthly payment plans with our clients to cover property taxes, which can help with budgeting and minimize larger outlays at once.

Isn’t Property Tax Planning for Leased Equipment an Issue for the Accountant?

Absolutely. We highly encourage our clients to consult their accountants for advice and assistance with their company’s financial matters. However, we believe in education, too, to help business owners become more knowledgeable.

The GFLS Services team manually sets up, processes and posts all property tax accounts and bills. Since we lease equipment across the country, this is a time-consuming process. However, this saves you money since you are not paying your accountant to do so as you’d likely do if you owned, rather than leased, the equipment.

Any time you have a question about planning for or paying property taxes on your leased equipment, give us a call at (480) 478-7400. We’re always happy to review the process and answer your questions.