When starting up, an owner-operator may ponder among buying, leasing, or renting a truck. Implying that one has the means and qualifies for any of these options, which one makes the most sense financially? Making the right call can seem overwhelming, especially because there will be financial repercussions for years to come. Let's evaluate each route.

1. Buy Outright

If you sit on cash and you want to put all that money to work for you, you could definitely go buy a truck in cash. Ownership and tax breaks make buying business equipment appealing, but high initial costs mean this option isn't for everyone.

As of Jan 4, 2019, Section 179 of the Internal Revenue Code allows you to fully deduct the cost of some newly purchased assets in the first year up to $1,000,000, as stated in H.R.1, aka, The Tax Cuts and Jobs Act. For example, if you are in the 25% tax bracket and you purchase $100,000 in business equipment this year, the net cost to you is only $75,000.

Moreover, you can receive tax savings for business equipment through depreciation deductions. The bonus depreciation is 100% and has been made retroactive to 9/27/2017. It is good through 2022. The bonus depreciation also now includes used equipment.

New vs. used equipment? If you have some money, but not enough to purchase brand new equipment, don't buy a used truck. We believe it would be wise for you to go after the brand new equipment. For example, you got 20 grand but a new dually costs 50, go use the 20 as a down payment and finance a new dually. This will give you peace of mind that the truck won't break down on you the next day, and even if (hypothetically), you will have the manufacturer warranty at your disposal.

2. Finance

If you have a decent credit score, hop in a dealership and finance a brand new truck. Depending on your creditworthiness, you may even not be required down payment, but if you are like most of us, get ready to drop $5k.

One of the main advantages of financing is that you could spread out the payments over as much as 6 years, which means small monthly payments (for a brand new dually as little as $1,000/mo).

Other than the dealerships, you could check with the bank you are currently banking with for loan options. Sometimes, credit unions and local community banks offer better terms than what you would be offered at the dealership.

Since these purchases are commercial in nature, you will be able to get a sales tax exemption. Let's start a conversation if you want to know how further.

Similar to cash purchases, the finance could be depreciated and you will be able to take advantage of tax write-offs.

In cases when your credit is lackluster,  a guarantor, who could be anyone from a family member, a best friend, or an investor, could secure the loan and help you get the equipment.

Contact us to refer you to the best deals in the nation.

3. Lease

Leasing equipment can be a great option if you have bad credit and are unable to finance it.

An equipment lease is essentially a loan arrangement in which the lender owns the equipment and leases it to you at a flat monthly rate for a specified term. At the end of that term, the lessee - you, might (not every lease matures with a title transfer) have the option to buy the equipment.

Leasing business equipment is a common strategy to preserve capital. This way, you can avoid making large cash purchases and reserve capital for operations. You’ll typically pay a higher interest rate than you would for a bank loan.

Leases are usually set up so that payments are made with operating funds rather than capital accounts and, therefore, are deductible as an operating expense. In many cases, under the new tax rules, a lease is still favorable over a loan for acquiring equipment. Under the new U.S. accounting rules, Operating Leases will find that the capitalized asset cost is lower compared to a loan or cash purchase.

4. Rent

Choosing to rent equipment means none or no big down payment would be required, and less money spent on the overall arrangement than with a loan or a lease.

Rental payments are generally considered a tax-deductible operating expense, which simplifies accounting.

Renting also frees you from responsibility for maintenance and repairs. And because most rental companies regularly update their inventories, you’ll generally have access to newer assets.

Naturally, there are downsides. You’ll be at the mercy of rental inventories when looking to procure that “must-have” piece of equipment. And, in some cases, renting could increase your overall expenses (compared with leasing and owning), because rental companies often build higher costs into their payment terms.

Contact us to connect you with some of the biggest truck rental companies in the nation. Generally, there are options for duallies and semis.

 


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Tax Advice Disclosure: Any U.S. federal tax advice contained in this material is not intended to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter addressed herein. Please consult further an accountant for certified tax advice.