If the time has come to replace your old copier with a cutting-edge digital copy machine, you’ll need to determine whether to lease or buy. Copier and multifunction peripheral (MFP) technology is constantly evolving and digital copiers are cheaper to operate because they print more efficiently and break down less often. While purchasing a digital copier has its advantages, most companies prefer to lease; when a lease contract expires they can upgrade to the newest model with all the important bells and whistles.
Types of Leases
For most companies, a fair market value (FMV) lease, also called an operating lease, is the most attractive. Under this type of lease, 100% of the operating costs can be expensed in a given tax year. At the same time, your company can minimize its monthly costs over the life of the lease and at the end of the term you’ll have the option to purchase your copier at fair market value (determined before you sign the contract).
“Dollar-purchase option” or DPO leases, also known as capital leases, give companies more flexibility in purchasing their copier at the end of the term. Typically, by paying more per month for the copier, you can then purchase the machine at the end of the term for a dollar, or for 10% of the market value as determined at the start of the lease.
Leasing Odds-and-Ends
Lease contracts generally run for three years and up to five years for high-volume machines. If possible, try to negotiate flexible payments that take into account your seasonal copying volume and deferred payment plans, or “step plans”, that start you off with low monthly rates. Be sure and peruse your leasing contract thoroughly, especially for clauses that pertain to termination. Also, be aware of potential copier shipping and/or moving charges you could be assessed once the lease expires.
Leasing Downsides
Leasing has a few notable disadvantages:
• When the contract ends you won’t own your machine (unless you opt for a DPO contract);
• If you don’t have a high-enough copy volume, or you exceed your copy volume, you could be assessed expensive penalty fees;
• If things change in your business and you need to terminate the lease, buyout options can be costly;
• And finally, be aware that you’re paying interest on your lease, up to 20% if you’re not careful.
Buying a Copier
Overall, it’s easier to purchase a digital copier than to lease, and you don’t have copy quotas to meet. You can deduct the entire cost of the copier as a Section 179 expense, or simply depreciate the cost over time. And consider the privacy issues: typically you won’t have to reveal as much about your company’s finances if you simply purchase a copier.
Finally…
Be aware that when it comes to leasing, contracts are highly negotiable. Make sure you understand ALL the terms of your contract, whether leasing or purchasing, and consult with your company’s CPA or financial officer to ensure you’re getting the best possible deal!
