Equipment: To lease or to buy?

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The sales rep may promise the world, but what's really better for your practice?

So you've decided to invest in a new piece of equipment for your veterinary clinic. The sales representative says a lease is the answer, and all you have to do is sign on the dotted line—the company will deliver the equipment tomorrow. You don't even have to make any payments for the next three months. Sounds good, right?

Now for the reality check. Leasing can be easy, but lease payments include an imputed interest factor, so you need to determine how much interest you'll pay—and what your total cost will be over the long haul—before you decide that a lease is better than simply buying the equipment.

If it's not disclosed, ask your accountant to help you determine the interest rate. Keep in mind that deferring lease payments adds interest to the total cost. And if you want to take the IRS section 179 immediate expense write-off, which is available in 2010 for up to $250,000 of equipment cost, you'll need to arrange a $1 lease buyout option to qualify.

You can always use financing as an alternative to leasing. It won't necessarily be the salesperson's first choice, so he or she may not offer it as an option up front. Many veterinary lenders offer 100-percent financing on equipment purchases, often at lower interest rates than a lease. When you finance, you own the equipment outright and you can use the IRS section 179 expense deduction. Plus, sales tax will be charged on the equipment cost, not the lease payment, so your sales tax cost will be less.

A final concern with leasing vs. financing is what happens if you want early payoff. With leases, most contracts will indicate that the only way out is to fully pay off the contract. Not so with financing—you'll simply ask the bank to tell you the principal amount of the loan and arrange to finalize the payoff.

Veterinary Economics Editorial Advisory Board member Gary Glassman, CPA, is a partner with Burzenski and Co. in East Haven, Conn.

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