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I own a UX consulting business, which is a single-member LLC, and work for clients remotely. When I first bought my work computer several years ago, I bought it from its manufacturer's site and deducted the whole cost of buying it in my taxes. My work computer is my business's most expensive piece of personal property by far.

Fast forwarding to now, it's past time to replace this machine. My business is now much more successful, and I make much more significant estimated tax payments for it every quarter. So I am looking to even out my expenses. At the same time, another attractive aspect of leasing is that some types of leases will force me to upgrade to a new computer at the end of the 2-year lease. That helps me run better software more easily and serve my clients better.

I am wondering whether leasing or buying makes more sense from a tax standpoint both federally (in the US) and hopefully also in my state (Maryland). Maryland requires LLCs and corporations to file a personal property tax return every year (which I described in this question), and both purchased and leased property is subject to those taxes.

  • new computer at the end of the 2-year lease That doesn't seem, to be a good deal. A good spec computer can serve you for atleast 5 years. So upgrading every 2 years, doesn't seem rational. I would add up the costs of both sides to compare which will be a cheaper option. – DumbCoder Sep 9 '16 at 10:39
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    I did the deduction on the current PC all at once. In the kind of work I do, it does not make sense to replace the computer only every 5 years. I also prefer to keep using the best possible equipment to provide better service to my clients. I've held on to this current machine for too long. I'm leaning a lot toward leasing because, as a solo consultant, there are only so many hours I can bill in a month and I have other expenses. What I'm asking about is what leasing instead of buying this new machine does for me from a tax perspective. – David Sep 13 '16 at 18:50
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    Most companies are on a 2-3 yr replacement plan. It's pretty average for anyone in the tech industry. – maplemale Sep 16 '16 at 20:31
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    Also, because you're talking about Apple PCs and they aren't really easy to upgrade... I think your option of leasing is viable. When people reference a PC lasting up to 5 years, it's usually not an Apple. But, that's a rabbit trail / another topic maybe for a different stack site. :) – maplemale Sep 16 '16 at 20:46
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    @maplemale Yep. A PC lasting 5 years also might not be a laptop. In my experience, laptops die a lot faster. – David Sep 17 '16 at 18:27
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Either way, (lease or buy), it's likely going to be an expense, not a depreciation. You would expense the entire lease amount - whatever that is in the year it was paid. A $2k-$3k computer probably isn't worth the trouble of recording it as a Fixed Asset and depreciating it yearly. I work for a company that buys thousands of PCs a year for its employees and we have a hard rule: If it's under $3k, it's an expense not an asset.

If you were buying $20k-$50k servers, this would be a different conversation both because of the price and the life of the item. Because it's such a small amount (unless you really are buying $20k PCs), it doesn't really matter whether it's your biggest expense or not, it's likely just an expense. Though, no one is preventing you from depreciating it over 5 years if you wanted to. See: https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depreciation-recapture

In summary: I would say your question is more of a business sense question than a tax question. Is it worth it to you to lease instead of buying because you are getting a new PC so often? Btw: every 2 years is not that often. It's average. Whatever your decision, I think the answer for taxes is the same: Expense it all in the year it was incurred unless you really want to spread it out and depreciate.

  • Thanks. So if (to use round numbers), I pay $500 on the lease for the rest of this year, $1500 during 2017, and $1000 during 2018, I ought to just put $3000 for 2016? Or the separate amounts that I actually paid in each year? – David Sep 17 '16 at 18:23
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    No... you would put the expenses down for the tax year you actually spent the money in. if you were depreciating, that would NOT be the case. But, an expense is always incurred when you spent the money unless you're dealing with a non-cash basis business. – maplemale Sep 19 '16 at 20:48

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