Best way to utilize monthly vehicle allowance from employer?

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Topic Author
mad_scientist
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Best way to utilize monthly vehicle allowance from employer?

Post by mad_scientist » Mon Oct 09, 2017 1:05 pm

My SO is moving to a new sales job where she will receive a monthly car allowance of $600. In her contract it states that $550 is intended for the cost of the vehicle and the other $50 is for insurance (although I don’t think that exact split matters). In addition to that she will be reimbursed based on the IRS guidelines for mileage driven – this money is noted to be for maintenance, gas, etc.

We want to buy a vehicle (compact SUV), but I’m not really sure how to approach this from a personal finance perspective. The money she receives for the car is not taxed (so all $600 will be deposited every month) throughout the year as long as she can show the money was used for the vehicle. But at the end of the year, whatever money isn’t accounted for will have to be claimed as income and taxed accordingly. Also, for some more background - both of our credit scores are 750+ so I expect we will receive a good rate. I’ve heard the advice to buy cars with cash, but the sum of money we have in savings is earmarked for a future house purchase in a year or two. For our eventual car purchase, we plan on putting down 10-20% as a down payment, depending on what financing we get and the final price of the vehicle.

I’m mostly looking for advice as to how to approach this from a Boglehead's perspective. Do we get a relatively used compact SUV for around 15k-20k? Or since she is receiving this money non-taxed should we take advantage of it and get a newer model around 30k? OR lastly, should we get a very cheap vehicle and pocket the car allowance and owe tax on the difference? Or is there something I’m not thinking of? Thanks!

ianferrel
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by ianferrel » Mon Oct 09, 2017 1:19 pm

Rationally, you should be more willing to spend on a vehicle if you're paying with tax-free money. So, imagine what you'd buy if you just had the extra income (with no strings), and (probably) buy something nicer. Exactly how much you're willing to spend is still going to be a personal decision.
OR lastly, should we get a very cheap vehicle and pocket the car allowance and owe tax on the difference? Or is there something I’m not thinking of? Thanks!
I'd be cautious of this plan. A sales job that provides such a substantial vehicle allowance would indicate to me that the salesperson is expected to entertain and transport clients, and to display a certain amount of vehicular opulence in doing so.

$7200 a year about covers a lease on a new mid-size luxury car. If you show up with a used econobox, that might not go over so well. Hopefully your SO can have a candid discussion with her boss/coworkers about what is expected in this area.

Jack FFR1846
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by Jack FFR1846 » Mon Oct 09, 2017 1:35 pm

I've had car plans for a couple decades.

If all I had to go by was the taxable/non taxable numbers, I'd buy a vehicle with zero down and use the entire $550 for the loan. This avoids tax and keeps her off the radar. By going zero down, you're spending less for the car than someone else who might trade something in or make a big down payment. You can also make the loan go a low number of years.

Look in the parking lot to see what others are driving. She won't want to stick out for the sake of being frugal.

$600 a month isn't bad.....but for a sales position, it's not at all high.
Bogle: Smart Beta is stupid

investor997
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by investor997 » Mon Oct 09, 2017 1:46 pm

How many miles per year does she expect to drive with the new position? That may determine lease vs. buy as the best strategy.

Topic Author
mad_scientist
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by mad_scientist » Mon Oct 09, 2017 2:04 pm

ianferrel wrote:
Mon Oct 09, 2017 1:19 pm
Rationally, you should be more willing to spend on a vehicle if you're paying with tax-free money. So, imagine what you'd buy if you just had the extra income (with no strings), and (probably) buy something nicer. Exactly how much you're willing to spend is still going to be a personal decision.
OR lastly, should we get a very cheap vehicle and pocket the car allowance and owe tax on the difference? Or is there something I’m not thinking of? Thanks!
I'd be cautious of this plan. A sales job that provides such a substantial vehicle allowance would indicate to me that the salesperson is expected to entertain and transport clients, and to display a certain amount of vehicular opulence in doing so.

$7200 a year about covers a lease on a new mid-size luxury car. If you show up with a used econobox, that might not go over so well. Hopefully your SO can have a candid discussion with her boss/coworkers about what is expected in this area.
Thank you for your input. We definitely won't get anything that would not be up to a general standard since she will need to transport clients occasionally. Currently we only have 1 car that is paid for that each of us use. We get by with just 1 car because I rely on public transportation for work which is convenient based on our location.

Topic Author
mad_scientist
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by mad_scientist » Mon Oct 09, 2017 2:06 pm

Jack FFR1846 wrote:
Mon Oct 09, 2017 1:35 pm
I've had car plans for a couple decades.

If all I had to go by was the taxable/non taxable numbers, I'd buy a vehicle with zero down and use the entire $550 for the loan. This avoids tax and keeps her off the radar. By going zero down, you're spending less for the car than someone else who might trade something in or make a big down payment. You can also make the loan go a low number of years.

Look in the parking lot to see what others are driving. She won't want to stick out for the sake of being frugal.

$600 a month isn't bad.....but for a sales position, it's not at all high.
Thanks that helps put things in more perspective. The other sales employees (there's only a handful) for her company are scattered across the US so I'm not exactly sure what they drive - she may know.

Can you expand on your point about keeping her off the radar? I'm not sure I completely follow what you mean by that.

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mad_scientist
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by mad_scientist » Mon Oct 09, 2017 2:08 pm

investor997 wrote:
Mon Oct 09, 2017 1:46 pm
How many miles per year does she expect to drive with the new position? That may determine lease vs. buy as the best strategy.
Hmm that's tough to say. Her territory will be the East Coast - Maine to Florida - and a little inland to New Orleans. She'll have to fly a decent amount but we're near enough to Boston, New York, and Philadelphia that she'd probably drive to all accounts in that region. I'd estimate 12,000+ miles per year since we're about 40-50 miles from an airport currently.

investor997
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by investor997 » Mon Oct 09, 2017 3:03 pm

mad_scientist wrote:
Mon Oct 09, 2017 2:08 pm
Hmm that's tough to say. Her territory will be the East Coast - Maine to Florida - and a little inland to New Orleans. She'll have to fly a decent amount but we're near enough to Boston, New York, and Philadelphia that she'd probably drive to all accounts in that region. I'd estimate 12,000+ miles per year since we're about 40-50 miles from an airport currently.
Standard leases are readily available for 15K miles per year. This might be a good place to start, especially if the car allowance requires a vehicle no older than a certain age - it's 5 years at my MegaCorp, so that pretty much rules out the 'buy and hold' ten year program often preached around here. As far as selecting a vehicle that doesn't stick out too much, this isn't really that big of a deal. Any mid-size vehicle (Accord/Camry/Fusion/Mazda 6/etc) is nice enough to take a customer to lunch in and yet certainly won't raise any eyebrows.

Jack FFR1846
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by Jack FFR1846 » Mon Oct 09, 2017 3:20 pm

mad_scientist wrote:
Mon Oct 09, 2017 2:06 pm

Can you expand on your point about keeping her off the radar? I'm not sure I completely follow what you mean by that.
If everyone with a car allowance is driving ..... say a Lexus is250 and using the entire $550 to buy or lease them and she instead buys a 3 year old, low end Camry for $250 a month, she might be on the radar for pocketing the money and not spending it on a car. As much as it seems wasteful to buy or lease a more expensive car, she won't want to be the one driving the Vice President to the airport after an office visit and have him notice that her car is below what he always sees sales people drive. As they're paying the money for a nice car, in some companies, not having a car up to that level can be trouble. I had to make this choice in one of my jobs where a Dodge Neon met the letter of the law, but knew that it wouldn't fly if I were the guy driving the VP back to the airport.
Bogle: Smart Beta is stupid

Spirit Rider
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by Spirit Rider » Mon Oct 09, 2017 3:31 pm

One thing to consider consider is what happens if she doesn't stay at the job. Sale positions are some of the least stable jobs. What happens in this circumstance. It is a far more important consideration than the type of vehicle.

adamthesmythe
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Re: Best way to utilize monthly vehicle allowance from employer?

Post by adamthesmythe » Mon Oct 09, 2017 3:50 pm

I would look at this as an opportunity to live a little. Spend most, but not absolutely all, of the available money on a pretty good new car that has good reliability and resale value.

Unless, that is, a few extra dollars makes a great deal of difference to your budget.

Beware of buying a car that seems too cheap. For a salesman it's like dressing in a bad suit.

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