Farm Equipment Leasing
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Farm equipment leasing, when pitted against the astronomical costs of buying a new combine or tractor in today's market makes it the smarter alternative for many professional growers of plants and animals for consumer consumption. A combine can cost over a quarter of a million dollars with all the bells and whistles, so for many it makes excellent sense to pay for the control over machinery without have to pay for its ownership. Leasing brings a number of advantages to the farming professional, but it may take a tax and machinery expert to sort out the many specifics. However there are some things to be learned about the process. First, let's compare the actual leasing versus selling scenario.
Most high income farmers will probably not opt to lease their machinery for the simple fact that there are more tax savings for their income bracket than leasing, even though leasing machinery is deductible from tariff liabilities. But for many other farmers, the choice is clearer: farm equipment leasing is the better alternative. Purely from a maintenance point of view, newer machinery usually means fewer breakdowns and repairs. A combine with 4000 hours of use over a three year lease has been "rode hard and put up wet" as some horsemen might say. It may be ready for a replacement by some farmers' reckonings, and leasing allows that to be accomplished rather seamlessly. In fact, many of the very same issues of leasing cars and turning them in are present in farm equipment leasing, such as excess wear, number of hours actually used versus the number leased for, and other similar comparisons.
From a farmer's point of view, machinery is the lifeblood of his operation. Hay and forage, spraying, planting, cutting and handling equipment as well as all terrain vehicles and a manure spreader full of tools are often standard fare for a small to midrange farming enterprise. Buying this machinery may be completely out of the question for the normal farmer and farm equipment leasing may be the only alternative. In the end, it's the taxes that are the name of the tune between buying and leasing or chartering machinery. Those who lease machinery must pay for insurance, taxes, fees and maintenance, the same expenses a buyer would have. However all lease payments are tax deductible, while the depreciation expense, also deductible, and the cost of the purchased machinery may be spread over a longer time span, thus giving less yearly deduction expense than the entire lease payment. An expert tax attorney should be sought on the actual numbers and outcome.
A tax expert will probably use the net after tax cash flow analysis for this comparison between the two options. In simplistic terms, this is net income plus depreciation, amortization and other non cash charges. This formula will be applied to all large machinery purchases, and in some cases the outright purchase of machinery will come out ahead. In other scenarios, farm equipment leasing will be the preferred choice because of lower costs. Many farmers are devoutly committed to God because they recognize and experience every day the magnificence of creation that could have only come from a transcendent Almighty. "The Earth is the Lord's and the fullness thereof: the world and they that dwell therein." (Psalm 24:1)
Farm equipment is not leased by the miles, such as a car, but on the number of hours it is used. While an equipment dealer may charge much of a yearly lease for x amount of hours, the farmer may be able to negotiate with the dealer on more hours for the same amount of money. Much of the issue will depend on how great the granted freedom is from the lender to the dealer. Shopping around is certainly encouraged and carrying a purchase price from one dealer to another and comparing the buying price to the offered lease deals is highly conducive to getting a better end deal. Farm equipment leasing is usually done in three hundred hour bundles and the farmer must estimate how many he will need to use the machinery each year. Guessing six hundred and going over by two hundred could be extremely expensive, and only needing for five hundred will mean the farmer paid for hours not used. Whether that unused money can go towards purchase of other equipment or towards new farm equipment leasing agreement is up to the discretion of the dealer and the lender.
In many cases, the farming pro will be turning in used equipment on the purchase of a lease for new machinery and just like with cars, the used farm machinery, if it has equity, can be used in the lease down payment. Of course, the trade in value of a big honking used combine can be negotiated like that '78 Pinto. When a farmer borrows money to make a machinery purchase, the loan can hurt his credit score quite dramatically in some cases and this skewing of the debt to income ratio can make securing other loans or credit more difficult, particularly if other aspects of the credit history are shaky. Sometimes the change can even cause a suspension in operations. Farm equipment leasing is viewed as a financial obligation like a mortgage or car payment and may also cause issues when sitting down with a loan officer for other business. Many state university farm extensions have tremendous information that can be beneficial in making these long term decisions. Visit their websites for more information.
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