Whether you are in the food and beverage, grain crop, concrete or pharmaceutical industry, chances are, you’ve faced the task of purchasing new test instrumentation.
However, knowing what instrument to purchase is only half the battle. Determining when and how to make that investment can help to build a solid case for your getting your next piece of test equipment approved.
Last week we discussed how utilizing a deduction in the tax code, known as Section 179, allows business owners to deduct up to $500,000 in new equipment purchases made during 2013. Section 179 applies to test instruments, machinery, computers, software and other tangible property. It incorporates both purchase and lease finance options. Section 179 has made monumental changes in the way businesses consider large purchases, as it allows the full price of the equipment to be deducted in a single year. Without this incredible tax break, businesses were required to divide the total deductions over the lifetime of the instrument, which could be over 30 years.
This week, we’ll be walking you through the benefits of employing Section 179 with a cost per day analysis of the net cost of a moisture meter with a Non-Tax/Capital Lease.
Let’s say you’d love to take advantage of Section 179 but you’d rather keep more money in your pocket to re-invest in the business this year. The benefit of a Non-Tax/Capital Lease is that it allows you to deduct the total expense of the new equipment, up to $500,000 if the equipment is put to use this year, while only paying a fraction of the total cost up front!
Non-Tax/Capital Leases include:
- 1.00 Buyout Lease, the recommended option if you are planning on purchasing the equipment at the end of the agreement which allows you to pay just $1 at the end of the leasing term.
- Equipment Finance Agreement (EFA), a more flexible financing option with no purchase- to- buy options or large down payments required at the end of the leasing term.
- 10% Purchase Upon Termination (PUT) Lease a fixed purchase option which allows you to continue to finance the equipment, return it or buy it at 10% of the original cost at the end of the leasing term.
- Kett also offers a Rent-to-Own program, a unique finance option which allows renters to purchase their piece of test equipment after a 90-day trial.
So, let’s crunch the numbers with a few example calculations regarding some of Kett’s most popular measurement instruments and check out the incredible savings!
Example 1. Tax savings after purchasing or financing a Kett KJT230 Instant Moisture Meter, which is put it into use in 2013 to take advantage of Section 179.
Example 2. How purchasing or financing $700K worth of new test equipment, e.g outfitting your entire plant with new rice quality analyzers in 2013, amounts to significant tax savings.
As we discussed in last week's blog, the maximum deduction possible using section 179 goes down significantly after 2013. Importantly, the 50% bonus deprecation, which covers half the additional cost of equipment over the $500K maximum can also only be taken for expenses incurred in 2013.
In summary, purchasing new test equipment before December 31st, 2013 is crucial to be eligable for one of the greatest tax breaks available to manufacturers and suppliers in decades. Maximizing your available deductions with a combined leasing option allows you to keep your capital invested in your company, while still getting the benefits of using new, efficient equipment.