Take car allowance or drive company vehicle?

[MonkeyMama]

Originally Posted by Beccagold

I think Mileage is very important here. I drive 2000k miles/month which means about $400 for gas. Also, the method of payment matters. If the company pays an "allowance" its taxed, if its "reimbursement" its not.

I was going to say I don't think that $1k is very far off. I worked at a job that wasn't really driving intensive, but had commutes to different clients of 100 miles per day easy - often more. I say it wasn't driving intensive because I did not drive all day from client to client - just a lot more far out clients.

We were reimbursed our total miles multiplied by the IRS mileage rate. I often received more than $1k/month in mileage reimbursements. When you factor the cost of the car, insurance, gas, repairs, etc., you can see how it adds up really fast if you have a driving intensive job (more the gas and repairs than the purchase/lease usually).

Drive 100 miles a day under a reimbursement plan and you'll get $1k/month easy. More...

I am not sure off the top of my head but I wondered if an allowance was taxable. I think if you can document your business miles and/or your business auto expenses you could take those as a deduction though on your tax return to offset the income. Something to look into. But mostly it would be preferable to set up a reimbursement plan it seems. The $1k seems like the least headache though from the choices you have been given. I think mostly it is an ease of use thing. Just a simpler way for everyone.

If you drive A LOT of miles for your car I would consider taking the company car. I only worked in my driving intensive job 1.5 years and put on about 50k miles. You go through cars REALLY fast that way. Also if they will pay for all the gas it really may come to more than the $1k in the end.

If you like to buy new cars every few years anyway than I'd take the allowance. I prefer to keep my car 10-20 years so it was quite expensive to run up so many miles on it I felt. You would definitely need to set a lot of the allowance aside for your next car purchase if you drive a lot.

If you really don't drive that much I would take the allowance. The threshhold would be around 2000 miles/month. Most employers would reimburse you $1k/month to drive that much based on current IRS mileage reimbursement rates. If you drive much less than that take the allowance and run. The rate includes insurance, gas, dmv, repairs, purchase and everything (it changes every year due to changing gas rates and such). Just as an idea as a way to quantify the benefit. Of course actual auto expenses usually are more than the mileage rate so something else to keep in mind. IT's a starting point.

[tabbycat31]

my father has a company car, and has since I was 8. He works for a town, and the car has the town seal on it. As for personal use, he can't take it on vacation, etc, but he has taken it locally (ie to the grocery store, etc)

Also he does not pay for gas......... he fills up at the town pump (also where police, school buses, etc fill up).

[Fern]

i woudl definitely take the $$ as i KNOW it wouldn't cost me $1,000 a month of carpayments or upkeep.

[davlat]

Not even need to think twice for me.. I would take $$$$ even the company car is BMW 7xx ... or made of gold or diamond embedded... or whatever... which will never be mine..
It is hard to believe for me (so good)... 1000/month + gas +possibly oil change...
I am sure I don't need 32k car..... not even a new car... I am happy to put extra $ into my pocket with my own car...

If you insist on comparing buying 32k car (at 18 MGP for new) with company car.. it depends on lotz of there factor... if you left the company, u have to feed ur thirsty car.. with lotz of depreciation... May need second car if you have family 'cuz in my view, those SUV never become a daily use except your home is about 50 miles off-road drive from high way.....
Anyway.. if your job really REALLY demand SUV and lotz of driving (30k miles/year).. Company car may be good for you...

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"A penny saved is a penny earned." --- Benjamin Franklin

[brig2221]

Given your specific described scenario, I would most definitely take the comapny car, and what tips the scale for me is the uncertainty you have that he will be in the position for a period of time.

If you were very confident that he was going to be in this job for awhile, taking the $1000 and paying the car off in 3 years wouldn't be a bad deal at all, regardless of the mileage you will have. The car would still have a good amount of residual value left to trade in for another car, or you could keep it to replace a second car, etc.

However, since you seem to think there is a chance he might not be in the position for a long period of time, take the company car! Last thing you want is a $32,000 car payment with high mileage and no money coming in for it a year into your loan.

Also, the $1000 allowance will be taxed at your marginal tax rate I believe. My wife's company is getting rid of their comapany cars (Ford Taurus') and will be going to car allowances. She gets two options. The first would be to participate in a Runzheimer program that gives a base amount of $300/month, plus money on each company mile driven. The other option would be to take a straight $800 allowance with no provisions for mileage. The Runzheimer program is good in that it is tax free that way it is setup and run. The $800 allowance however has to be taxed.

We are going to choose the $800 allowance over the Runzheimer program as a majority of my wife's mileage is actually driving 35 miles each way to and from work, and thus does not count as business mileage. We think the $800 allowance, though taxable, will still wind up being the better deal given her driving patterns.

[RetireEarly]

Legally, the taxes should be the same regardless of whether you take the allowance or the company car, given the same vehicle. You are required to pay taxes on either vehicle under personal use but not business use. Also, your daily commute to the office is NOT business use, and is taxable...

[Adambnn]

Originally Posted by RetireEarly

Legally, the taxes should be the same regardless of whether you take the allowance or the company car, given the same vehicle. You are required to pay taxes on either vehicle under personal use but not business use. Also, your daily commute to the office is NOT business use, and is taxable...

Agree, till now, the tax is one of the most important for me to consider.

[John66]

I have a company car and have had a car allowance in the past. There are pros & cons to both.

Car Allowance:
1) Make sure that it is a "reimbursement" this means you will need to track your miles. THIS IS CRITICAL!
2) Get AT LEAST the IRS allowance deduction as your reimbursement. I believe it is $0.505 this year.
3) Choose a car that is sustainable, durable, low cost and high fuel mileage, you might want to consider some of the new Hybrids or Hybrid SUV's

Company Car:
1) Do they cover insurance: Who can drive the car? (My wife & I can dirve our company car)
2) Reporting mileage is easy, Just make sure personal use numbers come in under 10%, being creative is generally OK.
3) ALL maintenance is covered by the company, in 2 years and 4 months I have had, AC replaced twice @ $1,500 each, Steering replaced @ $1,800, Radio replaced @$800 and a tire & Wheel replaced @$1,100
4) Car washes, oil changes and anything related to the car is covered by the company.
5) I am charged $150/mo for my personal use of the vehicle. I pay tax on the $150 only.
6) The car is replaced every 60k miles, I get to choose between three different models. My next car is a Dodge Charger SXT with an MSRP of about $28k.

I generally value the Company Car at $15,000 per year or $20k pre-Tax Dollars. Be VERY careful if you are taxed on the car allowance that it does not change your tax bracket!

John

[LivingAlmostLarge]

So which is better? I'm reading this and can't decide allowance or company car? Or is it driving dependent?

[Snave]

I have a similar scenario where I can choose the allowance or go with a company car. I only receive $600 a month and it is taxable income. However, when I went to do my taxes and itemize, I am able to deduct the mileage x 48 cents for 2007 (I think that was the number my accountant used). Here was the approximate math. 25K miles X .48 = about $12500 deduction. I was in the 25% tax bracket, so that helpd me save $3125 ($12500 x 25%). My allowance = $7200 a year at the 25% bracket means I net $5400 . When I added together I get $5400 + the $3125 that my deduction actually means to me = about $8500/year = $700 month. I don't know if I actually come out ahead b/c I have to pay insurance, but $700 net a month on a car seemed pretty good to me. I now have an SUV that has a 3rd row. If I had to go with a company car, we most likely would have purchased a larger vehicle to have for a family car. Therefore, I killed two birds with one stone. I bought a few year old used SUV and paid $19000 for it. $8500 x 3 years = $25,500. Even with insurance and any maintainance, I feel good that I will pay for the car in that time. Plus, it's not as if the car won't be worth a few grand in 3 years, even with the miles. Lastly, I have had a company car for 10 years and was tired of a taupe Tauras!

[maat55]

The amount of mile you put on the car is the most important factor, IMO. The more miles you put on the car the cheaper the car needs to be and get better gas mileage. If the amount of miles is high, I would take the company car. Low miles, I would take the allowance, and buy a nice but inexpensive car. Medium miles, I would take allowance and buy cheap car that gets good gas mileage.

[LivingAlmostLarge]

Interesting. That more mileage = company car. But Snave if you had a company car did you have to pay for repairs/oil changes, etc like if you got the reimbursement? Or was that all still covered?

[Scanner]

My neighbor is a drug rep. and he wrestles with this. He seems to go for the car allowance, which is what the forum leans here and I am sure it's not even $1000/month he gets.

He does tell me the drug co.'s have strict guidelines on keeping it clean and garaged though. I guess they don't want them walking up to DisneySteve's practice in an old beat-up Buick covered in mud.

So. . .he probably goes to the car wash every 2 weeks to keep it spiffy and washes it himself when he has the time. So, there's that added expense where I probably wash my cars 1x/quarter and wax with Nu-Finish 2x/year.

And yes, mileage/gas is an issue. . .he logs in some mileage per year.

SOmething tells me his car allowance was $600/month but I could be wrong.

Another issue may be your taxes:

Do you file a Schedule C? I wonder how it would work - if you are getting 12K/year, of course that's income, but maybe that's given to you on a 1099 w/out taxes taken out. Now. . .if you file a Schedule C (Sole Proprietor business return), you may get to deduct 80-100% if you lease the car. I am not a fan of leasing at all but in this case, it may actually make sense if you are getting an allowance.

The repairs would be under factory warranty - you lease a car for $0.00 down and $400/month. . .you have $600/month for gas and insurance.

Plus you now have some writeoffs. . .lease payments and car insurance.

I would ask your accountant for his/her perspective.

[disneysteve]

Originally Posted by Scanner

He does tell me the drug co.'s have strict guidelines on keeping it clean and garaged though. I guess they don't want them walking up to DisneySteve's practice in an old beat-up Buick covered in mud.

The sad thing is the reps all drive nicer cars than me. I've got my 1998 Toyota and they never have anything more than about 2 years old. Personally, I couldn't care less what they drive. I'd rather see the companies let the reps drive older cars and lower the cost of the drugs.

[jc3900]

All I have to say is two words: TOYOTA YARIS. Take the allowance.

[Snave]

Originally Posted by LivingAlmostLarge

Interesting. That more mileage = company car. But Snave if you had a company car did you have to pay for repairs/oil changes, etc like if you got the reimbursement? Or was that all still covered?

I do have to pay for repairs, oil change, etc... I don't put a ton of miles on a year, only about 25,000. I have some of my sales people that work for me that put on 50-75K a year and they go with the company car. I would also in that instance. I wouldn't want to run the value down in 1 year. Again, I net about $8500 out of it a year. A $19-20,000 car + insurance + maintainance should be paid in 3 years. Then there will still be a little value on the car, so I am ahead. Now, if I have major repairs, that's another story.

[maat55]

Trying to determine what is low, medium, and high miles for a specific cars is the hard part.

[Snave]

Originally Posted by disneysteve

The sad thing is the reps all drive nicer cars than me. I've got my 1998 Toyota and they never have anything more than about 2 years old. Personally, I couldn't care less what they drive. I'd rather see the companies let the reps drive older cars and lower the cost of the drugs.

I used to be in that industry years ago and the drug companies get there cars on the cheap. For example, look at a company like J&J where you have so many different divisions of a company from medical device to pharmaceutical to retail, etc... They are buying tens of thousand of cars and get them for next to nothing. They are buyng in such bulk. Fleet cars are sold extremely cheap to companies. There is also a reason that they turn the cars over at certain mileage points and after so many years. For them, they can return them to fleet at a mileage point where they are not completely devalued and fleet can re-sell them. They run the numbers to know what mileage vs. maintainance, etc... will cost them the least amount of money. Therefore, that helps them keep the cost down. I used to be in house at my company and know enough about some of this stuff to just be a little dangerous! That's why you see them turning cars over every two - three years. They are in the business of science and they even have car buying down to a science as well.

[LivingAlmostLarge]

They put a lot of miles on those cars right? So when you see them at 90k but 3 years old on a used car lot those are like that or rental cars?

[Snave]

My old company turned them over around 65K or 70K. I am in a different industry now, but those that take the company car with my current company turn it over about every 75K. Again, they probably are buying these in such bulk that they are getting them for next to nothing. I know my old company ended up pulling Ford (not sure which manufacturer, but think it was Ford) from our choices one year b/c Ford pulled the contract. Ford was loosing money on Fleet vehicles b/c they were selling them for less than it cost to produce them. Again, I think they basically give them away at cost and in some instances below cost. Remember, it is advertising for them to have so many Ford's on the road. It looks good for their market share, etc... So, the company buys the company car at $13,000 - $14,000 new (and we are talking about Ford Tauras, Pontiac Grand Prix, etc.... It is driven for 2-3 years and then fleet re-sells it for 8-9,000. So, it costs about $5000 to have the sales person in that car for 3 years. Plus, there is low maintainance in that time, so that way they can avoid those costs. If they keep them longer, they risk the car depreciating more and the maintainance going up. So, after a certain mileage and year, the maintainance and depreciation cost the company more money.