Tax Benefits of Equipment Financing: What Every Business Owner Should Know

This Blog is written for informational purposes only and NOT tax or legal advice. Please consult your tax professional.

When you think about equipment financing, you probably focus on the immediate benefits like preserving cash flow and acquiring the tools your business needs. But did you know that equipment financing can also offer significant tax advantages? Understanding these benefits can save you money and make financing an even smarter choice for your business.

Let’s explore how equipment financing can reduce your tax burden and help your business grow.

1. Section 179 Deduction

One of the biggest tax benefits of equipment financing is the Section 179 deduction. This provision allows businesses to deduct the full purchase price of qualifying equipment and software in the year it’s placed in service, even if it’s financed.

How it works:

• If you finance equipment, you can deduct the full cost (up to the annual limit) from your taxable income.

• The 2025 Section 179 limit is $1.2 million, meaning you can write off up to this amount for qualifying purchases.

• This deduction applies to both new and used equipment.

Example: Let’s say you finance $500,000 worth of equipment. You can still deduct the entire $500,000 in the first year, even though you’re paying for it over time.

2. Bonus Depreciation

In addition to Section 179, businesses can take advantage of bonus depreciation. This allows you to deduct a percentage of the cost of qualifying equipment in the first year. For 2025, the bonus depreciation rate is 80%.

How it works:

• Bonus depreciation can be used alongside Section 179 to maximize your deductions.

• Unlike Section 179, there’s no limit on the total amount you can claim.

Example: If you finance $1 million of equipment, you can claim 80% of the cost ($800,000) as a deduction under bonus depreciation in the first year.

3. Interest Deduction

When you finance equipment, the interest on your loan payments may be tax-deductible. This can further reduce the overall cost of financing.

How it works:

• Track the interest portion of your monthly payments.

• Include this amount as a business expense on your tax return.

Example: If you pay $5,000 in interest over the course of a year, you can deduct this amount to lower your taxable income.

4. Operating Lease Benefits

If you choose to lease equipment instead of financing it, you may still enjoy tax benefits. Lease payments are often fully deductible as an operating expense, which can reduce your taxable income.

How it works:

• Deduct the total amount of your lease payments for the year.

• This is especially beneficial for businesses that want to avoid equipment ownership and prefer lower monthly payments.

Example: If your annual lease payments total $30,000, you can deduct the full amount as a business expense.

5. Reduced Tax Liability

By taking advantage of these deductions, you can lower your taxable income and, in turn, reduce your overall tax liability. This means more money stays in your business, allowing you to reinvest in growth, hire new staff, or cover other expenses.

Important Considerations

While equipment financing offers many tax benefits, there are a few things to keep in mind:

• Eligibility: Not all equipment qualifies for Section 179 or bonus depreciation. Make sure to check the IRS guidelines.

• Timing: Equipment must be placed in service during the tax year to qualify for deductions.

• Professional Advice: Always consult with a tax professional to ensure you’re maximizing your deductions and complying with current tax laws.

Why Choose 1187 Lending for Your Equipment Financing Needs?

At 1187 Lending, we’re committed to helping businesses like yours take full advantage of equipment financing. Here’s why so many business owners trust us:

• Expert Guidance: We’ll help you understand how financing impacts your taxes and cash flow.

• Flexible Financing Options: Whether you need $50,000 or $5 million, we’ve got solutions tailored to your needs.

• Fast Approvals: Get the equipment you need without unnecessary delays.

Maximize Your Tax Benefits Today

Equipment financing isn’t just about getting the tools you need—it’s also a smart way to save money on taxes. Contact 1187 Lending today to learn more about your financing options and how to maximize your tax benefits. APPLY NOW!

FAQs About Tax Benefits of Equipment Financing

Q: Can startups qualify for these tax benefits?A: Yes! Startups can take advantage of Section 179, bonus depreciation, and other deductions, provided the equipment qualifies.

Q: Do I need to pay for the equipment upfront to claim deductions?A: No, you can claim the deductions even if you finance the equipment and pay over time.

Q: How do I know if my equipment qualifies?A: Check IRS guidelines or consult a tax professional to confirm eligibility.

Save on taxes while growing your business. Contact 1187 Lending today to get started with equipment financing!