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What You Need to Know About Leasing

Why should I lease versus paying cash for the equipment?

You can better manage your cash flow and free up cash to reinvest in your business when you compare the cost of lease payments with the money or time saving benefits offered by the equipment. A lease can also eliminate the burden of obsolete equipment because you have the flexibility to upgrade to new and improved equipment at the end of your lease term.

What are the tax benefits associated with leasing?

In a non-tax-oriented lease, the lessee is treated as the owner of the equipment for tax purposes. This means, they can usually claim depreciation deductions on a tax return. Talk with your accountant about your specific situation.

What is a Tax-Oriented Lease?

A Tax-Oriented Lease is a lease under which the lessor will be treated by the IRS and for commercial law purposes as the owner of the leased property and permitted to take tax benefits (e.g., depreciation deductions on the leased property). All rentals paid by a lessee under a Tax-Oriented Lease are (for the lessee) deductible for federal tax purposes. Tax-Oriented Leases are sometimes referred to as "true leases" or "guideline leases."

The IRS does not treat all agreements labeled as "lease agreements" as Tax-Oriented Leases. Lease agreements that are not treated as Tax-Oriented Leases for federal income tax purposes are treated as conditional sale contracts or loans and referred to as "non-tax-oriented leases" or "quasi-leases."

Is the finance-lease product a Capital Lease (Non-Tax Oriented) or Operating Lease (Tax Oriented) and how will I apply it to my books?

There are a variety of lease options for every business. This means the accounting options are as varied as the businesses using them. If accounting and tax considerations are important to your lease decision, you should talk with your accountant or tax advisor prior to leasing.

What taxes am I responsible for?

In most states, Dollar Leasing is required to pay a use tax on every monthly payment. Since the lease payment was calculated in advance, and the use tax rates change from time-to-time, the tax amount is billed separately.

In certain states, the full amount of taxes is due at lease approval, and in these situations the financial responsibility falls to Dollar Leasing. We then add the amount of the tax to the cost of the equipment and calculate it into the monthly payment.

Many states also charge an annual tax on tangible personal property. Dollar Leasing is the legal owner of the equipment and therefore we are required to pay this tax. This cost is not included in your lease rate, and therefore is passed on to you in either a lump sum or added to your account balance. Again, these taxes change periodically and are not included in the calculation for the base monthly payment.

How will sales tax be collected on the finance lease if I am not exempt?

Taxes may be due up front at lease inception or due for each monthly payment depending upon the state where your business is located. How the taxes will be applied should be discussed with your Dollar Leasing representative early in the approval process.

How and when will I be billed for my loan or lease?

Shortly after signing your lease, you will receive a coupon book to use when making monthly payments.

Can I pay off my lease before term end? What are the penalties if any?

Leases can be paid off before term end, however a prepayment penalty will apply. The dollar amount of the lease and how close you are to term end will determine the amount of the penalty.

Who really owns the equipment?

For federal tax purposes, the lessor is the owner of the equipment under a Tax-Oriented Lease. If the lease is Non-Tax-Oriented, the lessee is the owner.

What is the interest rate on my lease?

Since you are leasing and not taking out a bank loan to finance your purchase, there is no "interest rate." You're paying to rent equipment, and the monthly payment amount is based on the type of leasing plan you selected, the terms of the lease and the cost of the equipment.

Why am I required to insure my leased equipment?

Since Dollar Leasing owns the equipment and your lease is for the use of that equipment, we must ensure that if the equipment is destroyed or stolen, our lease will be paid off from the proceeds of the insurance policy. Most commercial policies cover leased equipment and your insurance agent can forward an endorsement to Dollar Leasing at no cost to you.

What if the vendor requires a deposit before ordering or delivering?

Dollar Leasing will make deposits on the customer's behalf only in special cases with approved vendors. In other cases, deposits can be made by the customer and subsequently refunded by Dollar Leasing. We prefer that you disclose in the approval process whether or not you want the deposit refunded.

What if there are multiple vendors or equipment deliveries?

Using several equipment suppliers and delivery schedules usually does not affect your lease unless there is a significant time discrepancy for equipment deliveries or orders.

What should I do if I have problems with the equipment that I leased?

The vendor and/or the manufacturer providing the equipment is solely responsible for any service or warranty issues. Dollar Leasing will only assist with financing the equipment.

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