Signtronix Sign Company

With that in mind, it is easy (signtronix signs) to tell the difference between tax accounting (i.e., accounting for the sole purpose of paying taxes and complying with law) as opposed to tax strategy.  There is also a difference between a lazy, high-paid accountant and one who works diligently and hard to constantly save his clients tax dollars.

REMEMBER, THE CURRENT TAX Codes are designed for the so-called average small business to spend about $10,000 per year on capital purchases.  (That’s a digital message center per business per year.)  This is designed by the U.S. Congress to stimulate the economy, because capital expenditures by businesses really work the best and fastest at economic stimulation; therefore, favorable lease/purchase laws will be around for a long time.

In any event, we should suggest to our customers that they should always consult their accountants.  The Tax Codes constantly change; and, most sign salesmen (except for me) are not accountants.  Don’t try to be an accountant – this information is provided to help you promote leases and answer silly leasing objections.

Most CPAs are of the opinion says Signtronix, that a business should lease/purchase “income-producing property” and pay cash for things that simply cost a business money that doesn’t generate any income.  When that is done, the business can depreciate 100% immediately while paying $100 per month, for example, for three or four years.

The “time value of money” means that a business receives a 100% immediate depreciation expense (a non-cash expense) for a small monthly payment that will be paid with “cheaper dollars” at a future date!!!  And, all those “future dollars” can be used to buy “today’s” inventory .  .  .  That converts to cash “today”.

Again, the current Tax Code literally pays for 75% of the sign .  .  .  In the first year with a lease/purchase using today’s Tax Code.  I realize that accounting articles are a turn-off for most non-accountant types.  But, most business people know that the price they pay for an accountant should be paid by the money their accountant saves them every year.

However says Signtronix Signs, businesses can now depreciate 100% of the value of the asset in the first year!!!  Again, this is a non-cash expense on the income statement (100% depreciation the first year with only one-third or one-fourth of the asset paid – not bad!)

Therefore, in response to the customer who says he pays cash for everything, tell the customer that he can depreciate 100% of the (lease) price of the sign as “Depreciation Expense” on his income statement, which is a non-cash expense.

Simultaneously, he only writes a check for one-fourth or one-third of the actual (lease) cost.  This is better than paying cash for everything.  All succeeding payments after the first year is money the client would pay in income taxes anyway.

Signtronix Signs – By the time an asset was paid/adjusted/and depreciated, 75% of that asset was paid by what normally was paid in income taxes over 3 to 10 years.  Section 179 of the current Tax Code states that a “Fair Market Value” lease can be capitalized on the balance sheet as a “Fixed Asset,” namely, “Sign.”

LEASE PURCHASE PAYMENTS are treated as a “Liability,” similar to a mortgage payment – which also remains on the balance sheet (as opposed to the income statement).  Only the monthly payment goes on the income statement as an “Expense.”

When Signtronix asked to write this article about leasing, it frankly had been a long time since I last worked with the accounting debits and credits of leasing.  But, in researching the current Tax Codes against the old Tax Codes that I worked with, I found that the new Tax Codes are even better.  Under the old Tax Codes, a business could expense the lease at 100% on the income statement as “Advertising Expense.”  That reduces the taxable income and saves the taxpayer businessman about 25% of the value of the asset from being paid in income taxes.

At this point, this gets a bit heavy, but it’s worth paying close attention.  After the lease expired, a business could then adjust the “Retained Earnings” and income statement and capitalize the sign on the balance sheet under “Fixed Assets,” i.e., “Sign” at the total value paid by the lease.  Then, that business would depreciate 200% of that value back on the income statement as an expense that didn’t even involve cash.  That would further reduce taxable income.