Take car allowance or drive company vehicle?

[disneysteve]

Steve the $1K is taxable.

Now there's an important fact that hasn't been mentioned.

What are the tax implications of having a company car, if any?

[sweeps]

The personal use of the company car (usually tracked by mileage) is taxable as well. That's an added pain with the company car route... constantly tracking what is nonpersonal and what is personal use.

Regarding insurance, how much could it be a month? $200 maximum? And if you have a car payment, sure that cuts into the $1,000, but at least you're going to have a car of your own after it's all said and done.

[project15]

Here's my breakdown for a 23 yr old male, no accidents, and married
Car payment - $288 ($15k 2003 VW GTI - 60 month @6.5%)
Gas - $200 (very padded, normally $160 a month driving about 300 miles a week)
Insurance - $82 (full coverage through state farm, $1000 deductible)
Maintenance - $100 (this seems to cover all those expensive routine maintenance stops too)

Total: $670

So your after tax amount of $1000 is probably around $750-800. If you get a cheaper vehicle ($15k like mine) you still have an extra $80-130 a MONTH.

[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.

[disneysteve]

The personal use of the company car (usually tracked by mileage) is taxable as well. That's an added pain with the company car route... constantly tracking what is nonpersonal and what is personal use.

This fact alone would make me go for the allowance and not the company car. I would never want to have to track my personal mileage. I also wouldn't feel comfortable always driving "someone else's" car. I would still want my own personal car and that would be too much of a pain.

[MonkeyMama]

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]

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!