Technology Refresh – Buy or Lease?

We get asked this question a lot – usually in the form of “What do your other clients do?” The answer is, of course, some of each.

This is where we put in the disclaimer that we are not tax advisors or attorneys, so if you need advice that is specific to your business’s financial situation we’re not the guys! Often purchasing lets you take a large deduction in the year that you purchase the equipment, whereas a lease usually spreads the deduction over multiple years.

BUT – we are always happy to get you a quote from Dell or another leasing company. They are often willing to roll in the professional services also – so our fees can be included in the lease. Let’s take a look at the most common options:

What is the Average Life for Computers?

We recommend planning on 3 years for laptops and 5 years for desktops for budgeting purposes. This of course depends on how the computer is treated, whether or not it has a robust configuration and the requirements of the user. We always suggest a 3 year next day onsite service warranty unless you are able to be without a computer for a few weeks while it is sent away for repair.

Fair Market Value (FMV)

With a Fair Market Value Lease you typically have three options at the end of the lease:

·   purchase the equipment at its then-determined Fair Market Value

·   return the equipment

·   return the equipment and upgrade to new equipment with a new lease

FMV is great if you intend to refresh your technology – match the lease to your technology refresh schedule and your payments are typically pretty steady, making budgeting and planning much simpler. You also have the option of buying the equipment at the FMV if your plans change.

$1 Buyout

With a $1 Buyout lease, your payments are typically higher than FMV, but you own the equipment at the end for virtually nothing. $1 Buyout leases are often used for equipment that retains value over time, so the classic definition doesn’t fit computers! It all depends on whether or not you want to own computer equipment that is 2, 3 or 4 years old, and what your plans are for refreshing technology.

How is a lease different from a loan?

During the lease period, you don’t own the equipment – the leasing company does. In the end, if you take advantage of either the $1 Buyout or the FMV purchase, ownership would then be transferred to your company.