Vehicle Expense Costs
Expense Vehicle Costs
Deciding whether or not to have your company or you to purchase or lease a vehicle is one of the most frequently asked Questions that Juli and I receive. My clients start out the conversation by stating that they have a very simple question. Trust me; this is NOT a simple question.
My response to the question starts with the following questions.
1) Do you plan to purchase a new or used vehicle
2) If a new vehicle will the vehicle qualify for Section 179 expensing? (will it weigh over 6000 lbs)
3) How long do you plan on keeping the vehicle
While the lease of a vehicle is often a consideration, the first decision to be made is whether the individual or the business should acquire the Vehicle. Lease vs purchase does not affect this decision.
Note, because vehicles depreciate so rapidly, the purchase of a new vehicle ranks right up there with Credit Card Debt as one of the worst things that you can do for your financial future.
If you decide to personally own the vehicle, you must pay for all expenses from your personal funds. (Fuel, Insurance, Maintenance, loan payment). Your company will reimburse you for business use of your personal vehicle at the mileage reimbursement rate. If you decide to have the company purchase the vehicle, the opposite is true and you will reimburse the company for personal use of the company auto. You may have to add additional reimbursement for use of a luxury auto.
To determine who should own the vehicle, you must understand what it costs to operate a vehicle. When IRS develops the annual mileage reimbursement rate, they consider that depreciation costs approximately $.20 / mile. The balance of the mileage reimbursement rate is for Fuel and Maintenance etc. With the exception of rapidly changing fuel prices, I believe that the Government estimated rates are a fair reflection of true costs. Thus, the decision regarding Auto ownership depends upon what the depreciation on your vehicle over the life of your vehicle will be.
01/18/2010
