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Article: Tax benefits of financing fabrication equipment

By Amy Thomas in Industry Trends, Thought Leadership Posted December 17, 2018

Forward-thinking fabricators and manufacturers are analyzing profits, losses, and sales projections as the year winds down. Many may be considering upgrading equipment, replacing aging equipment, or expanding capacity.

Year-end Benefits

The fourth quarter is the time to determine the best way to pay for capital equipment and maximize the benefits of recent tax reform legislation for qualifying purchases.

Financing capital equipment enables fabricators to conserve their cash and lines of credit while providing maximum flexibility. Financing at the end of the year also is a smart way to use any remaining capital budget while preparing for the year to come. Finally, banks often offer more advantageous pricing in the fourth quarter for select finance offerings.

Making the Most of Tax Reform

Many businesses are enjoying improved profitability in 2018 as a result of tax reform. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered income tax rates for many businesses and expanded available writeoffs for businesses of all sizes. This overall lower tax burden for America’s companies is allowing many business owners to consider reinvestment or expansion of their businesses.

The Tax Lease Option

Companies with a more complex tax situation also may want to consider a tax lease. Tax leases effectively trade tax depreciation for lower payments by shifting tax ownership to the financing source. Plus, tax leases allow the entire lease payment to be deducted as an operating expense on the business’s tax return.

New Year, New Equipment

While any time of the year is a good time to finance equipment, the fourth quarter puts additional focus on the possible tax benefits of bringing new equipment online before the new year. After all, the benefit of equipment comes from its use, not its ownership.

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