Decision on Company Car vs Personal Car

[Gustie13]

Has anyone faced the decision whether to accept a company car or take a monthly car allowance to keep your personal car? I'm faced with that choice and was curious what factors people have taken into consideration and what decision they've come up with.

Factors indentified so far--

Company Car:
Monthly Fee (essentially to cover insurance and maintenance)
Must keep track of Personal Miles. As I understand it, at the end of the year personal miles are multiplied by $.55 (a figure from the IRS) and that figure is added to my Taxable Income.

Personal Car:
Initial cost, Depreciation, Expected resale value
Estimated gas cost
Estimated maintenance
Insurance
Monthly Allowance (and taxes due from that allowance)

Is there anything I'm missing?

So far my search has narrowed in on 2009-2011 Nissan Altimas, 2006-2008 Infiniti sedans (Is, Ms, Gs), 2006-2008 Lexus Sedans (Es, Gs, Is, Ls), 2009-2011 Honda Accords, and 2006-2010 Acura Sedans (Rls, TLs, TSXs) due to reliability, mpg, FWD or AWD (live in MN), expected resale, and appearance.

For those who would suggest getting the cheapest, most reliable car around there is a certain standard personal vehicles must meet in order to qualify with my company. Otherwise I'd keep my 15 year old Integra with 170,000 miles on it and rust everywhere

[og15F1]

I've faced the decision but the parameters were different. Your company is being sort of tight with this, in my opinion, having you track personal miles on the company car and/or maintain some certain standard of quality with the personal vehicle.

For me it was only a question as to whether I would pay more or less out of pocket for my personal car than I would gain with the allowance. I pay less for my car than the amount I receive as allowance so I make money on the deal. Else I'd fore-go that money and drive a car I don't like.

Is this your only car? Is there a significant other or children in the picture with a car(s)? Depending on that situation I might lean one way or another with respect to spacing out new car purchases.

[mike143]

How much is the monthly fee? If it is low enough I would just use the company vehicle for work only and keep your current car for personal use.

How many miles per work day will you be putting on this vehicle, what type of driving, highway, city, etc.

Its odd that they are going to tax you against $0.55 per mile but not compensate you at the same rate. If you got compensated at the same rate it and you drove enough work miles it might work out in your favor to purchase a newer vehicle that lower ownership cost (depreciation, fuel, maintenance, insurance, etc).

If you don't mind me asking, what type of work is this? Seems kind of odd they are placing such a burden on an employee.

At the company I work for company vehicles are part of a person compensation package and they can use it for personal use.

[Gustie13]

Is this your only car? Is there a significant other or children in the picture with a car(s)? Depending on that situation I might lean one way or another with respect to spacing out new car purchases.

The Integra is my only car, correct. I'm 29 and have 1 girlfriend, 0 wives, & 0 kids, so I don't have any use for the car once I start the new job.

How much is the monthly fee? If it is low enough I would just use the company vehicle for work only and keep your current car for personal use.

How many miles per work day will you be putting on this vehicle, what type of driving, highway, city, etc.

Its odd that they are going to tax you against $0.55 per mile but not compensate you at the same rate. If you got compensated at the same rate it and you drove enough work miles it might work out in your favor to purchase a newer vehicle that lower ownership cost (depreciation, fuel, maintenance, insurance, etc).

If you don't mind me asking, what type of work is this? Seems kind of odd they are placing such a burden on an employee.

At the company I work for company vehicles are part of a person compensation package and they can use it for personal use.

The monthly fee is $155/month. I was planning on about 6000 miles annually being business and 6000 being personal. Between the two (Fee and Taxes on Personal Miles) I'm estimating the company car would cost about $3200/year.
I'll be doing Sales for a consumer packaged goods company.

The biggest variables I've found are depreciation (resale) and maintenance - all of the cars I've looked at get between 20-25 mpg (conservatively) and insurance would be $800-$900 (checked with my insurance carrier).
I've checked out AutoTrader to estimate the costs of each car and see what an older one with an additional 50,000 miles (assuming 4 years of use) would go for to get an estimate on depreciation. Not really sure how to estimate maintenance - I would assume the newer options (Accord, Altima) would have lower costs (and may even still be under warranty) than the older ones (Infiniti, Acura, Lexus), but I've checked Consumer Reports and all 5 options scored well with Reliability.

There are pros and cons on both sides. It would be nice knowing that no matter what goes wrong with the company car I don't have to pay for any maintenance. But on the flip side, an Altima or Accord would be saving me $1000-$2000/year as long as nothing catastrophic goes wrong (i've assumed $1000/year in repairs).

[deanbrew]

I'm not sure I'm understanding everything, particularly the "monthly fee" if you take a company car and the "monthly allowance" if you use your own car. If you take a company car, do you pay $155 a month or do you collect $155 a month? If it's the company's car, they should pay insurance and maintenance, I would think.

If you use your own car, how much do they provide as a monthly allowance? Is it a flat figure or a per-mile figure. They "should" pay you $0.55 per mile, which would result in no tax impact on you. If they pay you less than this amount, you should get to deduct the difference between the IRS standard allowance and what they pay you. If they pay you more than the IRS standard, it would be taxed as income to you.

I'm leaning toward you owning your own car and collecting whatever you can get from your company and writing off additional if they don't fully compensate you at the IRS rate, but I would like to find out more.

[Gustie13]

Here is exactly what I'm getting and giving in each case-

Company Car
Give/Pay-
$155/month fee
Taxes due on Personal Miles
Get/Receive-
Company Car
Insurance
Maintenance
Gas
Car Washes

Personal Car
Give/Pay-
Cost and Depreciation of Car
Insurance
Maintenance
Gas
Taxes Payable on Allowance
Get/Receive-
Personal Car
$580/month allowance

[Epsilon Delta]

Personal Car
Give/Pay-
Cost and Depreciation of Car

You might already know this but if you add the car payment to the depreciation you're double counting. That is the cost is the sum of depreciation and running costs; acquisition payments should not added to the cost, as they don't affect your net worth, although they do affect your cash flow. Some people prefer to use the aquizition payments as the cost, in which case they should not include depreciation and should really add back the residual value.

Two more things to consider.

1. How long will you stay with this job. If you have your own car and leave you are saddled with car payments. If you have a company and leave car you are saddled with not having a car. This could go either way depending on your circumstances.

2. How often will company standards require you to replace the car? This might also affect what car you choose, since if you get say a 2006 you may be required to upgrade sooner than if you get a 2011.

[jebmke]

Your company is being sort of tight with this, in my opinion, having you track personal miles on the company car and/or maintain some certain standard of quality with the personal vehicle.

This is quite standard. The quality standard is very normal for anyone who might be using the vehicle in an official capacity, especially sales jobs. The miles tracking is likely a tax matter. When I was in Europe, I couldn't even down size to a company provided car that was slotted for someone in a lower level job.

[deanbrew]

If I were in your shoes, I would definitely buy my own car and collect the $580 per month allowance. That is actually very generous if you do indeed drive only 6,000 business miles per year. Heck, it's about right if you drive twice that many miles on business each year, as $580 divided by the current 55 cent IRS allowance equals 1,055 miles per month or 12,655 per year. The IRS figure is designed to encompass all car ownership costs, including fuel, maintenance, insurance, registration and depreciation.

Look at it this way: you can lease a new Honda Accord EX for 36 months for $229 per month, plus $2,000 at signing, equivalent to $285 per month (based on a current advertized lease deal). That takes care of depreciation, as you would turn the car in at the end of the lease. Fuel would cost about $140 per month, insurance would be $70 and maintenance and registration might be $50 per month. Your total cost would be around $550 per month, including both personal and business use. You would collect $580, so you would in effect have a free car and make $30 a month. The Accord is just an example. You can search for purchase or lease deals however you desire.

I'm not suggesting that you lease a car rather than buy one, BTW, but it's easier to look at the monthly figures when leasing. If you buy any of the cars you indicated in the first post, you would likely lose about $2,500 to $3,000 in depreciation each year, or about $210 to $250 per month. Less if you keep the car for more than five years or so.

Again, I would buy or lease what you want and collect the money from your company.

[mike143]

Base on the additional info I would finance (1.49% PenFed) or purchase, if you have the cash, a more economical car: Prius C, Civic, or Corolla.

$3200/12 = $266.67 + $150 = $416.67 <---- Sounds like a bad deal to me for the "company" car. (I maybe wrong here. Only taxes against the $3,200? What does that approximate to?)

[harrychan]

At a glance tells me gas paid by company makes this a no brainer. It doesn't sound like your car is going to last. Also, don't underestimate the miles you are going to drive.

[mike143]

How does insurance liability work on the company provided car? If they carry the minimum limit and it is exceed, who is liable, you or them?

[Saving$]

I knew a guy who worked construction and had a company truck. They wanted him to drive it home each night because it was not safe to leave it on the jobsite overnight so he drove it to and from work. At home it was parked; he had another car. The company kept asking him to turn in his personal mileage and he kept telling them he had no personal mileage on the truck. They then explained that driving to and from work was personal mileage. He offered to stop coming to work if the company was going to charge him every time he came to work, and assured them he would certainly stop coming in on Saturdays if that was costing him more money.

So I think the mileage to and from work is considered part of personal mileage.

[Gustie13]

Epsilon Delta-
1) Correct, I am not counting the Cost AND Depreciation, just Depreciation.
2) I plan on being with the company / in the department for a while. Long enough to not need to worry about it's impact on the car decision.
3) The company standards aren't hard and fast (not x miles or x years) for a personal car. As long as I can keep the personal car in good repair and reflect a professional company image I'll be ok. 2006 is about as far back as I'm looking to go, I'm planning on getting rid of the car in 4-6 years which would put it at 10-12 years old by then.

Mike143,
My math had the company car expenditures at $3,111 per year: $1860 in fees (12 x $155) + $1251 in taxes (7000 personal miles {very conservative} x $.55 per mile IRS rate x 32.5% tax rate {25% for federal, 7.5% for state}).

Saving$,
That is my understanding as well - to/from work is personal mileage, not business. I live 5 miles from work, so its not as big of a deal for me as it is for some of my coworkers that are 30 miles from the office.

[Valuethinker]

Here is exactly what I'm getting and giving in each case-

Company Car
Give/Pay-
$155/month fee
Taxes due on Personal Miles
Get/Receive-
Company Car
Insurance
Maintenance
Gas
Car Washes

Personal Car
Give/Pay-
Cost and Depreciation of Car
Insurance
Maintenance
Gas
Taxes Payable on Allowance
Get/Receive-
Personal Car
$580/month allowance

If you are in a job that requires a company car that says to me:

- high mileage
- a prestige factor (eg visiting clients) and relative to your colleagues

On that basis, I'd probably take the company car, regardless of finances. You don't sound like the kind of person who will go back to a personal car some day and buy a BMW because that is 'what I am used to'.

The company car they will handle maintenance, insurance, gas. That's a huge load off your mind.

They are offering you this car because you will do a lot of company business in it, I presume. You might as well get them to pay for the cost of all those miles in depreciation, insurance, gas, repairs.

The paperwork factor is a significant hassle though.

I asssume the $580pcm is taxable?

You can build a nice NPV table on this but my own view is the likely improvement in your financial position by using your own car (say 200-300 pcm?) is probably not worth it vs. the lower hassles of the company car.

Exception: if you have high interest personal debt (eg student loan) then you want to maximize personal cash flow and debt repayment. that is the best 'investment' you will ever make, repaying debt that charges you above say 5% interest (or 6% maybe).

[bottlecap]

I would presume that the $580 per month is not taxable, as it is to cover expenses paid out of his taxable income. This would be an important consideration at your tax rate, however, so I'd make sure.

Assuming it's not taxable, I'd probably take the personal car. You will likely still have to have personal car insurance, so that is still an expense regardless. Look at a five year period - your company car will be costing you $3,200 per year with nothing to show and your company will pay you $6,960 per year to drive your own and in the end, you will have another car. You gas will be not much more than $2,000 per year. Maintenance shouldn't be more than $1,000. It's close, but over a 5 year period, the difference is largely going to be that you will have a car that is worth maybe $10,000 (I'm guessing based on a 2006 Lexus selling for maybe $22,000 now) in one scenario and nothing in the other. If you can drive it for longer than 5 years at the company, you're car's depreciating less, but you are pocketing the money over gas and (admittedly somewhat increased) maintenance.

If you bought new cars every three years, I might decide otherwise.

Good luck,

JT

[Gustie13]

JT,
The allowance IS taxable according to the company policy I've read. I still think its worth going the personal car route.

[texasdiver]

So what happens if you are out of state on a holiday weekend with the company car and wreck it or get is stolen?

If I was only going to have one car to use in my life and it was a choice between company car and personal car I'd definitely take the personal car even if the cost is greater. Just for the privacy of not having to answer to anyone else about when and where I'm driving and the ability to keep my work life and private life separate.

[bottlecap]

JT,
The allowance IS taxable according to the company policy I've read. I still think its worth going the personal car route.

Does that mean you will be able to deduct your transportation expenses at $0.55 per mile? Otherwise, you're getting taxed on what is essential a reimbursement for work expenses. I'd check the IRS rules to see if there's a floor for that deduction as well.

Other than that, you're only receiving $4,700 after tax, then. That's a closer call, but you may still be right about the personal car being better. You could look into whether there is any insurance savings to the company car and also consider the cost of sales/use taxes and registration fees to come up with a more accurate figure, but it probably won't make that much of a difference.

Buy a car you like in case you lose your job!

Good luck,

JT

[Gustie13]

Does anyone have any thoughts on the tax implications of that $155/month fee for the company car? Would I be able to deduct that $1860/yr from the Taxable Income I would need to declare?
So it would look something like this:

(Personal Miles x $.55/mile (rate from IRS)) x tax rate) - Use Fee)

[Alex Frakt]

Being forced to pay $155 a month plus $.55 a mile for personal use would be a deal killer for me. That figure is based on the lifetime costs of a car, but assuming you need a car in the first place, your actual cost for an given mile is only the cost of gas plus a bit for maintenance, which is somewhere in the .20 to .30 cents per mile range depending on fuel efficiency.

In this case, I'd take the $580 allowance and lease. Since you are a Honda fan, the redesigned 2013 Accord is a big improvement on the last generation and you should be able to lease it for something under $400 a month. There are other acceptable options that could get it down closer to $300. Your depreciation and most or all maintenance costs will be included in the lease deal and you'll be able to keep up appearances by driving late model vehicles which is apparently a big deal at your company.

[Gustie13]

Wanted to close the loop on this after the helpful responses:

I took the allowance and bought a 2009 Altima w 43K miles on it. Car has been running well so far, not quite the gas mileage I'd hoped for but the remote starter and MN winters might be impacting things

Thanks everyone.

[WHL]

Man, after reading this thread, I realize I am getting an extremely good deal on my vehicle allowance.

$750 / month as a taxable benefit, gas paid. The rest is up to me, but as my vehicle is paid off and I already have to maintain and insure it, it's not a big hassle.

I do realize why I was asked to keep a log of the mileage I drive, as one of the posters pointed out that the company will take my work miles driven, multiply it by the federal rate, and see how it matches up to my monthly benefit. I still think that part is BS, and I'll be having a conversation with the HR manager about it.

[Cherokee8215]

A few comments from the "dark side"...aka non-financial consideratioins.

-Does the company car have a GPS tracking device? My employers' cars do. Tracks location, speed, time spent idling, time between engine off and on, etc. I wouldn't want my boss to know I left my girlfriend's house at 1am on a worknight. If you go over 65mph for more than 5 minutes for example, the boss gets an automated email.

-Company policy on traffic or criminal violations in the company car vs. your own car? Once again, at my company, speeding ticket in company car = "demerit" at annual review time. DUI in company car = you're fired. Either of these in your own car = meaningless.

Disclosure: I have a company car that I use for company business and commuting only.

[Gustie13]

A few comments from the "dark side"...aka non-financial consideratioins.

-Does the company car have a GPS tracking device? My employers' cars do. Tracks location, speed, time spent idling, time between engine off and on, etc. I wouldn't want my boss to know I left my girlfriend's house at 1am on a worknight. If you go over 65mph for more than 5 minutes for example, the boss gets an automated email.

-Company policy on traffic or criminal violations in the company car vs. your own car? Once again, at my company, speeding ticket in company car = "demerit" at annual review time. DUI in company car = you're fired. Either of these in your own car = meaningless.

Disclosure: I have a company car that I use for company business and commuting only.

I'm fairly certain our company cars do not have GPS tracking in them. They make you state/submit your business miles (if you take the car and not the allowance) but they just take your word for it.
We have a similar policy on violations, although i've never been sure what the ramifications would be for violations if you take the allowance. You're required to change your insurance policy Auto Use to Business, I wonder if that and the allowance means they could punish you for moving violations?

[nodenuff2]

Having the benefit of a company car for over 40 years I think I am qualified to give my opinion. The value is influnced by the amount of company driving you do . We are allowed to take the vehicle home at night. We pay for our personal gas (like going out of town for the weekend but not for running to the grocery store). We pay income tax for our personal use value mine is like 250 a month. they pay for all maitaince gas tires etc. It has been a great benefit with a value of aat least 10,000. at today's prices. When I soon retire it will be one of the items I miss most. Take the car unless there are strict use regulations .

[tainted-meat]

I have a company car and would highly recommend choosing that option. It is a great benefit and it is very nice not having to worry about paying for maintenance, tires, gas (except for personal use), oil changes, insurance etc.