Fidelity Capital News
Economic Comeback Makes Financing an Affordable Option Once Again
Coming into 2014, there was a lot of positive energy about the state of the United States economy. Real GDP and employment were both steadily on the rise, with the nation achieving a new record level of economic output despite having two million fewer workers than it did at its peak over the past decade in the 4th quarter of 2007, just before the beginning of the recession.
Because of the way that the economy has come back from the recession over the past few years, there are once again plentiful opportunities for companies to take out loans or lease the equipment that they need for their operations. The process for obtaining financing has become much easier, and there is a quicker turnaround time after an application with a much greater chance of acceptance. Rates are finally also settling back to reasonable rates, making financing an affordable option for companies of all types.
Time to grow your business
With financing once again being a legitimate option for businesses, this enables organizations to get back to focusing on growth rather than simply worrying about staying afloat financially. By choosing to lease equipment, companies can spur growth in numerous areas of their operations. One such area is employment. With the savings you can earn from choosing leasing over purchasing equipment, you can hire more talented people to your team to help you improve and grow as an organization. A company is only as good as the team it assembles, so being able to save money while also being able to bring in other people is an invaluable asset.
Leasing also gives you the ability to put more focus on your marketing endeavors. When costs are tight, one of the first areas that businesses scale back on is marketing and advertising. This is understandable, but also is not at all sustainable, because sooner or later you’ll need to push your boundaries as an organization and reach out to new customers. Leasing gives you the savings you need to get back to focusing on your marketing campaigns.
Finally, there is the potential to increase the amount of equipment you use if you choose to lease rather than purchase. Whether you’re in need of computers, vehicles, medical equipment, software, dental equipment, furniture or anything else, leasing helps you to avoid huge loan interest and upfront costs while making it easier to upgrade down the road should you choose to do so. So for example, rather than purchasing one company truck, lease two or three! Rather than purchasing five computers, lease ten! Leasing gives you those kind of options.
Continue to be mindful of your spending
Of course, just because the economy is back on the right track doesn’t mean that companies throughout the nation should get back to the reckless spending they were engaged in before. Stay mindful of your spending and avoid putting your company in at financial risk. Take on debt that you know your company can repay rather than debts that you might not be able to fulfill within a reasonable amount of time. Remember: interest can be a killer.
Consider some of the following questions when determining whether or not you’re taking on a smart expense:
- What will my payments be on a monthly basis?
- How much money will the equipment make/save me every month?
- Do I really need the equipment that I’m leasing, or this particular amount of equipment?
As you consider all of this information, we at Fidelity Capital would love to hear back from you. Tell us about how you are working to expand your business so that we can learn from each other, bring new ideas to the table and help to contribute to the health of both the national and global economy.
Explore. Learn. Do. Contact us today at Fidelity Capital to discuss more about what your company is capable of doing with its finances in the current economic environment.
The Section 179 Deduction Explained
The IRS’s Section 179 deduction is extremely important for every business owner to understand. As tax season approaches, you should know what this law means, as it gives you access to some outstanding deductions that could save your business money.
Section 179 allows you to deduct the full purchase price of any qualifying equipment that you purchase or finance during the tax year. This tax incentive was originally designed to encourage businesses to invest in themselves by purchasing equipment and supplies they need for their day-to-day operations.
The deduction is extremely beneficial, as without it, you would only be able to write off the depreciating value of these expenses. Either way, you would eventually get the full price back in deductions, but because Section 179 allows you to get back the full amount at once, you don’t have to worry about spreading out those deductions over the course of multiple years.
Qualifying for Section 179
Before your business can leverage the power of Section 179 deductions, you need to be sure that you qualify under the law. For 2013, organizations that purchase or finance less than $2 million in either new or used equipment for their business qualifies. If your business is unprofitable in 2013 and has no taxable income on which to use that deduction, then you can choose to use a 50 percent bonus depreciation toward a year when your business does turn a profit.
This “less than $2 million” requirement is the stipulation of Section 179 that makes it specifically geared toward small businesses.
Any property you wish to deduct under Section 179 must have been acquired for the use of your business and must have been purchased, and not rented. Specific types of eligible property include:
- Tangible items, such as machinery, equipment, livestock or property contained in or attached to a building
- Single-purpose agricultural or horticultural facilities
- Storage facilities used for distributing petroleum products
- Computer software purchased off the shelf
- Property used primarily for business purposes (at least 51 percent of the time)
- Certain types of real property, including qualifying leasehold improvement, retail improvement and restaurant properties
It’s important to note that there are certain types of properties not eligible for deduction under Section 179, including land and improvements and leased, energy and lodging properties.
Deduction limits of Section 179
For 2013, there is a deduction limit of $500,000. This affects the combined costs of all of the businesses you run, and not each individual business. You do not have to deduct the full amount of your expenses, as you can choose how much you wish to deduct under the section’s guidelines. Any unclaimed items must be depreciated.
Additionally, there is a limit on the amount of property that is deductible under Section 179 that you can purchase in a given year. You are required to reduce your Section 179 deductions by a dollar for each dollar that your purchases go above the 2013 applicable limit of $2 million.
Additional limitations of the law
You are not allowed to use the Section 179 stipulations to deduct more in a single year than your net taxable business income for that year. To figure out exactly what your net taxable business income is, simply subtract your business deductions from your total business income. The deductions you subtract should not include Section 179 deductions, your 50 percent self-employment tax deduction or any other operating losses that affect your taxes for that year.
Please note that if you have a net loss for the year, you are ineligible for any Section 179 deductions for that year.
For more information about Section 179 deductions, we encourage you to contact Fidelity Capital. Our financial professionals are happy to discuss these stipulations and how your business can use them to save significant money.