An overview of the tax benefits of leasing and how to qualify for the benefits.

Tax structures of leases
For the small business owner, there are two primary types of leases that determine the tax benefits: Operating (true) leases and Capital (finance) leases. The key-determining factor in understanding which type of lease is most appropriate for you is the buyout at the end of the lease. eLease recommends consulting a CPA for advice on which structure makes the most sense for your business situation. The following chart compares various issues with each type of lease:

	Operating (true) lease	Capital (finance) Lease
Characteristics	Usage/rental Agreement	Purchase Agreement
Buyouts	Fair Market Value (FMV)	$1.00 buyout
Payments	Lower monthly payments	Higher monthly payments with a fixed buyout at the end
When to Use	1. When low monthly payments are highest concern. 2. When collateral value of the equipment decreases rapidly making use of the equipment more important than ownership at the end of term (ex. Computer hardware/software)	When ownership of the equipment is desired at the end of the term
Tax Benefits	- Strongest tax benefits - Operating leases are tax-deductible expenses and are deducted from corporate income. - Write offs are immediate and do not require depreciation over 5 or 7 years. - Operating Leases provide a stronger earnings early in the term relative to a Capital Lease	Treated same as owned equipment or loan financed equipment
Balance Sheet	Not reported on Balance sheet	Shown as a long term asset