Equipment leases are often an economical way of acquiring equipment.
However, if you, the business owner, are not careful, you may incur some unpleasant tax consequences. Under the Code, lease payments are considered expenses. Thus, they are deductible in the year in which you make them. In contrast, the Code treats installment payments toward a sale as capital expenses, and these may not be fully deductible in the year you make them. The difference between deductions for expenses and capital expenditures can be shown by an example.