From wiki.eser.org

[edit] excerpt from article:

1.)Leasing effectively moves the value of the leased item out of the Fixed Assets of the balance sheet, reducing the overall fixed assets. This has the result of improving the ratio of asset turnover, a prime measure of business performance. It also has an effect on the operating statement, as it becomes a straight cost. It is a much more transparent way to deal with something that will probably get cycled out within 3 years. As others have mentioned, your tax benefit mileage may vary.

2.) I am not an accountant, but I am a small business owner so I have some idea about this stuff.

The advantages of leasing are primarily:

1. cash flow benefits 2. tax benefits

One of the primary things that small businesses (well, all businesses, but especially small businesses) have to manage is their cash on hand and their cash flow (when cash shows up, when it leaves) If I have to buy a $3000 server and I pay cash then I need to have $3000 cash right now and that cash goes away. If I lease that server, then I might have monthly payments of $50/month. Over the life of using the equipment I pay more, but at the outset I don't have to have all of that cash around.

Also, when you pay money to buy something of value, for tax purposes you don't take all of that cost off your profit immediately (you pay taxes on profits, not gross income) You have to depreciate it out over a period of time which is supposed to represent the useful life of the equipment. This means that while you might have paid the money out (in cash) you can't claim that they money has all gone away yet for tax purposes. Not fun!

When you lease an item the leasing company owns that capital expenditure and so they depreciate the item. Your monthly payments can be treated as expenses so they come off your taxable profits immediately. Plus you don't have to account for the depreciation, etc.

In my business most of my costs are salaries for my people, not workstations for them to use so workstation costs are a small fraction of my expenses. It makes sense just to buy a decent workstation outright rather than haggle with the lease people and try to return or buy out the eqipment later on. Other businesses will operate differently.