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East Central SD | Your example is one of the best and especially bad because you are not even matching the payment year with the depreciation year. But all intermediate debt is bad. You are taking a deductible expense but then are required to make a principle payment with after tax money. Remember, all principle payments have to be after-tax. When you factor in the tax paid on the income you had to have to make the principal payment you essentially change your interest rate (what I would call your after-tax effective rate). You can take a 5% note and end up with an after tax rate of 7% if you were in a 20% tax bracket.
While I don't like any intermediate debt and would try to avoid it leasing actually looks like a better option to me if necessary.
I would argue that almost every operation that has gone broke - the reason was because of too much intermediate debt. | |
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Do you pay income taxes?
