The ins and outs of deducting equipment; this tax advice will help you pay less on April 15

Home Office Computing, Dec, 1992 by Linda Stern

You have to look at the two deals side by side for the long term--the five or six years through which you would be depreciating the computer--to get a true sense of which is the better deal for you. A valid comparison would take into account your tax rate, the depreciation amount, the interest rate on the loan to buy the equipment, and the price of the computer after the lease is up (a figure which typically is not available when you sign the lease). You also have to consider the time-value of money: Saving $1,000 today is better, in financial terms, than saving $200 a year for five years, because you have the use of the money earlier and longer.

Finally, a word to the wise: The IRS looks askance at lease deals that are thinly veiled purchase plans. A deal in which you lease a computer for a year, write off all the lease payments, and then buy it for a couple of dollars may be viewed as an installment sale rather than a lease and could subject you to recapturing depreciation you never took. Or paying a tax attorney far more than you saved in deductions.

Contributing editor LINDA STERN works from her Maryland home in suburban Washington, D,C. She also writes about financial matters for Reuters, The Washington Post, Parents, and Forbes.