tax advantages and leasing

[Joel D]

Im surprised so many on the boards say to try to pay cash for your machine. For one i would never save enough plus the right off for leasing is like 97% or so.
I didnt lease all the gatgets just the bare bones machine. We just had our taxes done and between the lease and what i spent on advertizing I was shocked how much lower my taxes were compared to when i just was installing carpet other years. One to three jobs a month and the lease is taken care of plus the business advantages of having a good machine and being able to do jobs faster jumps the business ahead. Actually Im annoyed at myself for not doing this sooner.

What am i missing? Most arent paying their taxes?

 

[Askal]

You can expense (meaning write off the entire amount)of equipment purchases over 100K a year so it is a wash in that respect. If you can't get a loan or are trying to preserve capital and credit then leasing is a good idea. I have ran the numbers many times and leasing is always more expensive.

 

[Joel D]

Yeah, I guess I should have specified. I meant getting a loan or a lease versus trying to wait and save. For most people that could take years.

But yes i wanted to have some credit still available in case i got in trouble since this is all new to me.

I never was able to figure out exactly how much I lose leasing versus a loan.

 

[steve frasier]

big difference between

I have to make a payment

vs

I need to save instead of putting it in my pocket

 

[Desk Jockey]

I usually check with the accountant before we decide, but usually he says they are pretty much the same depending on what are plans are for the vehicle.

On the lease, we put down what we want, if any, set the residual where we want it, and choose the length.

We don't lease everything but being flexible makes us take a look and weigh the options.

 

[floorguy]

the few i have gotten..(mind you my credit is ehhhh ok)

its around 15-20%

so the COST almost doubles over a 4 yr period...

however the COST SAVED in being able to write it off is priceless...

as always check with your CPA, but i think its 100% write off on payment for a lease..

this last year, between ins, lease, fuel and other "expenses" on my box truck..It COST me about $1000 a mth. but i made more money then any other year this last year...and so it saved my ass when it came tax time

 

[boazcan]

Leases and loan cost interest. Interest is taking money directly out of your pocket. You can write it off all you want, but you paid it out anyway.

Like the old argument, I take a 30 yr mtg because of the tax write off. You pay $10,000 (example) per year in mtg interest for an average savings of $2000-2500. Who wouldn't take $10,000 to give back $2500.

If you don't have the cash, then you have to make that choice. Be disciplined enough to save for yourself, instead of making that mostly interest payment to the bank.

The freedom you will feel from having no debt cannot be explained. Try it you might like it, if you don't then go borrow money.

 

[Steve in Omaha]

I never was able to figure out exactly how much I lose leasing versus a loan

This was quite a few years ago (15+), and I could not get a bank loan for a TM, went the lease route. For 48 months, the lease cost me $84.00 more each and every month over the cost of a bank loan (had it been available). I'm thinking today, lease rates may be a bit more competitive, but still more expensive than a bank loan.

 

[floorguy]

Leases and loan cost interest. Interest is taking money directly out of your pocket. You can write it off all you want, but you paid it out anyway.

Like the old argument, I take a 30 yr mtg because of the tax write off. You pay $10,000 (example) per year in mtg interest for an average savings of $2000-2500. Who wouldn't take $10,000 to give back $2500.

If you don't have the cash, then you have to make that choice. Be disciplined enough to save for yourself, instead of making that mostly interest payment to the bank.

The freedom you will feel from having no debt cannot be explained. Try it you might like it, if you don't then go borrow money.

hey i get it, my dad is a payoff, out of debt natzi, i hear it all the time...

my point to him is, and he gets it to...problem is he is stubborn and it is only x amount $$$ once a year...

i make more per yr then him, (yes i have 5 kids he has none for write offs but he makes ALOT less) yet guess who pays each year for taxes??? ill give ya a hint..its not me

So if i decide its better for me to have some debt and the advantages to it, then so be it..

much like peoples pricing structure, what works for one, doesnt work for others

 

[Kevin. McCreary]

Who really cares about the payment and the write off, sure they are nice, but
the dumbest thing you could ever do is pay cash for a machine when you could
borrow someone else s cheap money to make more money. Then write it all off.
Its much more profitable to take your hard earned cash and invest it somewhere
where it wont depreciate like a truckmount will. Use someones money other than
your own for a machine and van that will be worthless in 10 years.

 

[Mr.V]

I dunno if it's cuz I'm in Canada or if I had a crappy accountant but no way was I ever able to write off THAT much of my leases

maybe cuz I ran as an O/O???(not ltd.)

then once you pay for 4-5 years you have a big payout on a machine that has over 4000 hours.........YIPPEEEEE

I'll never lease again personally

 

[Kevin. McCreary]

Ever heard of a dollar buy out? Or a guaranteed purchase price at the end of the lease.
Or you can set your residual value buy out at what % of the vehicle you want to lease.
Its like when you see a Vortex for $900 a month you are only leasing 70% of the vehicle
after the lease is over you owe 30% of the original price. You can give it back or buy it out.
I have leased 40% of a Butler before for $375 a month for 36 months and just gave it back
I was done with it. It worked out nice, no new tires or brakes and I put 75k miles and 3200 hours
on it so it was toast anyway. What they do with it after that is their problem. Looking back at it
Butlers hold their resale value pretty well, they probably didn't really loose out too much, someone
from the Butler Cult probably bought it.

 

[boazcan]

Who really cares about the payment and the write off, sure they are nice, but
the dumbest thing you could ever do is pay cash for a machine when you could
borrow someone else s cheap money to make more money. Then write it all off.
Its much more profitable to take your hard earned cash and invest it somewhere
where it wont depreciate like a truckmount will. Use someones money other than
your own for a machine and van that will be worthless in 10 years.

That game plan would have cost you an average 50% loss in the market last year. Who do think has been sweating bullets for the past two years? Those with 4 trucks financed or the guy with 2 paid off trucks. There is something wrong when someone cannot save up $30k to INVEST in their business. To each his own, that is why Wachovia posted their best profit ever last quarter. When it takes debt to motivate someone, then we have problems as a whole.

I was in finance for 12 years. I made a very nice living loaning people money who never should have been even looking for it. But who am I to judge by all the Warren Buffets here who to borrow for the tax write off. One of the biggest sales jobs of our century, and it is growing!! I also spent that time seeing how debt will control your every move. I lived it, I saw it, it was sad.

Our economy needs everyone to lease, so have at it. When the bankers are happy, so is everyone else.

 

[floorguy]

yeah i dunno on Canada...but here for me, all 3 of my leases 2 for equip, and 1 for vehicle 100% is write off...there is no depreceation or any of that stuff, just 100% write off..

in the case of my vehicles, 1 is write of on mileage, the other (the leased one) is write off on expenses...it gets worse mileage, so all my cost of gas, its the box truck (heavier) and will cost more to fix brakes, suspension etc. to fix then a van

 

[floorguy]

Who really cares about the payment and the write off, sure they are nice, but
the dumbest thing you could ever do is pay cash for a machine when you could
borrow someone else s cheap money to make more money. Then write it all off.
Its much more profitable to take your hard earned cash and invest it somewhere
where it wont depreciate like a truckmount will. Use someones money other than
your own for a machine and van that will be worthless in 10 years.

That game plan would have cost you an average 50% loss in the market last year. Who do think has been sweating bullets for the past two years? Those with 4 trucks financed or the guy with 2 paid off trucks. There is something wrong when someone cannot save up $30k to INVEST in their business. To each his own, that is why Wachovia posted their best profit ever last quarter. When it takes debt to motivate someone, then we have problems as a whole.

I was in finance for 12 years. I made a very nice living loaning people money who never should have been even looking for it. But who am I to judge by all the Warren Buffets here who to borrow for the tax write off. One of the biggest sales jobs of our century, and it is growing!! I also spent that time seeing how debt will control your every move. I lived it, I saw it, it was sad.

Our economy needs everyone to lease, so have at it. When the bankers are happy, so is everyone else.

uh i dunno it would be split, the guy who owes on it could always dump it(not a smart move but hey) the guy with them paid off now has 2 heavy paper weights, if he doesnt keep them busy...yes as sad as it is, i am slightly more motivated to work when i owe, then when i have things paid off and caught up

 

[Kevin. McCreary]

Ask someone like Ken Snow who has like 40 vehicles what the best way to put money in
your pocket with them.

All I know is that a motor vehicle is one of the worst investments one can make.

 

[Brian R]

The whole purpose to recieving a loan is for cash flow.
If you finance or lease it allows you to keep the money in the bank that would of paid that off.
If you don't have money in the bank, it allows you to have a vehicle in order to produce cash flow.

The biggest business' in the world lease and finance and take out loans.

Sometimes it is the smart way to go.

You can always have bills but having money in the bank is priceless. Much better than NOT having debt....oh, I feel a new thread coming.

If you default on a loan you will have money to survive.

 

[boazcan]

The whole purpose to recieving a loan is for cash flow.
If you finance or lease it allows you to keep the money in the bank that would of paid that off.
If you don't have money in the bank, it allows you to have a vehicle in order to produce cash flow.

The biggest business' in the world lease and finance and take out loans.

Sometimes it is the smart way to go.

You can always have bills but having money in the bank is priceless. Much better than NOT having debt....oh, I feel a new thread coming.

If you default on a loan you will have money to survive.

Sounds like a great plan to fail. Always got to prepared for everything. I would rather pay cash, replenish the cash, and then amazingly actually have some cash in the bank at the same time. What a revolutionary concept...................To have no debt and money in the bank. It is not against the law to do both of these at the same time. These theories crack me up. Go read the millionaire next door - number one theme is no or low debt. Go argue with them, stop trying to compare yourself with McDonalds or Dell Computer.

 

[Brian R]

Bryan, (Hey, spell your name right will ya? :wink: )
Plan to fail?
Some of the most successful business' in the world take out debt.

If you pay off a loan and take all the money in the bank to do it...then something happens IE: injury, equipment failure, death in the family or maybe you just need capital to finish a job...where do you stand? With your thumb up your ass scrambling to get a loan would be my guess.

Anyone will tell you that cash is king. You should try to keep as much money in the bank as possible AND keep your debt low...of course...but if you HAVE to chose...you really have to do what saves your own ass.

You stated "Always got to prepared for everything".
Having no money, is not being prepared.

#1 rule in business? Pay yourself first.
Just ask Donald.

 

[rhyde]

Debt is not bad or good it’s how people use or abuse it that key as for A lease it can be a great tool for business in the right situation


While this has little relevance to us it’s important to note that Warren buffet & Donald trump didn’t make billons paying cash they went deep into debt and used others money to make their money in fact at one point Trump was so deep in debt he used it as leverage with the same banks that loaned him money to get debt forgiven and reduced interest rates.

 

[Jack May]

When it all comes down to the line as far as tax is concerned, it's really quite simple.

If you MADE money, you pay tax. If you LOST money, you get a rebate/credit.

Given those two scenarios, I'll gladly pay tax each year, simply because if I have a tax bill, it's because I'm getting ahead and making money.

Sure, employ a good accountant that can legally reduce the numbers but NOT at the expense of lost income.

On the saving up verses leasing right now, my accountant advised me 5 years ago to lease. Now a Genesis 59 in a box van al;l new had a set up cost of $120,000.00 I put about $15,000 down and placed it over 5 years at 2050/mth. That totals 123k, sure they got the tax back at 12.5 % but with those numbers, there is no way I could have ever saved taht sort of dosh with my previous set up.

That all comes out later this year and it's mine with nothing more to pay. saving 2k a mnoth will be very attractive, but I'm not going to pocket that (all) I'll be setting up a small equipment account and that same amount that I've learnt to live without, will continue to go away for a rainy day or the next major equipment purchase.

I chose the first option on Brian's other thread. I'd rather have cash to get work to service the debt than be totally debt free with nothing in reserves to work with.

John