Lease or Buy Your Computers, which one?

With the financial crisis, many businesses are thinking if they should lease or buy their computers, telephone switches and office equipment. This year it is far more complicated than before. The Economic Stimulus Act or known as the $600 rebate checks, control some powerful tax incentives to get small businesses to purchase new equipment.

Leasing high-priced items like computers has been a way of fixing costs and spreading them over a longer time. A survey conducted last year by the Equipment Leasing and Finance Foundation found that 59% of computer equipment and 32% of software used by companies are leased or financed.

Leasing helps maintain cash flow and preserve capital and credit lines in an unstable economy.

Aside from cutting up-front costs and allowing to pay a monthly fee, leasing lets you bundle any extras you might need like installation, maintenance, software and even employee training. It also protects you from technological obsolescence because the leasing firm is stuck with what could be obsolete technology at the end of the contract.

If you leased that PBX system rather than buying it years ago, you would be able to exchange it for a cost-saving voice-over-ip model when the lease was up.

Different points for leasing and buying

The disadvantage of leasing is that it is more expensive than buying. For example you want to have 10 Dell laptops and docking stations at $2,000 each. You can either pay Dell $20,000 now or rent $703 a month for three years which is $25,308 all in all.

But the advantage of buying is that you own the equipment forever. There are also special tax savings for purchased equipment.

Congress sweetened those so-called Section 179 deductions considerably in its economic stimulus package, but only for equipment bought and installed by the end of the year and only up to the amount of taxable income your business does this year.

For this year only, the law doubles the amount you can write off as an expense, to $250,000, instead of having to lower the purchase over several years. Nearly all tangible property used by your company qualifies, including computers, software, office equipment, and even furniture. If you go over $250,000, the package includes a temporary depreciation bonus that lets you write off up to 50% of the purchase in the first year, on top of the normal depreciation allowance.