Tax benefits from leasing
October 1, 2015
by Dan Malovany
Leases come in various structures, but when determining tax breaks, bakers need to decide if they’re primarily entering a capital or operating lease.
A capital lease occurs when the ownership of the asset transfers to the lessee or baking company at the end of the term, noted Matt Carlisle, corporate account executive, United Leasing, Inc. For accounting and tax purposes, such a lease is treated like a loan. Because equipment is listed as an asset and the lease payments as a liability, the bakery can claim depreciation and interest expenses.
An operating lease occurs when ownership of the equipment or building is retained by the lessor or finance company after the term of the lease. Payments are considered an operating expense — not as debt — which allows the baker to deduct the full lease as a rental expense.
“There are current changes in the accounting rules for leases under consideration by the International Accounting Standards Board and the US Financial Accounting Standards Board. It’s important to consult your CPA about the proper accounting treatment and any potential tax benefits,” Mr. Carlisle said.