message pit business owners

sponger

A friend of mine and his wife own a small business in so cal.

Recently they had me go through their books in the unlikely event that I might have some advice.

It turns out they spend a lot of money on reimbursing employees for mileage. They're a service-oriented business, and all their work is done out at the clients' location.

I tried suggesting to them that they'd be better off simply leasing new vehicles as company cars.

They gave me some blah blah about insurance woes. If figure maybe they have a point, but we're talking thousands of dollars per year in savings by not paying out mileage reimbursements.

I know the pit has a few business owners lurking about. Can you give me some insight on the pros and cons of having company vehicles?

Thanks.

lalalalaaaaaaaa

Well if they owned the cars, they'd still be paying for the milage. On top of that, they'd have insurance and maintenance costs. Even with a lease, they'd still be paying insurance. I don't see how it'd save them money at all.

chromiam

Saturnal wrote:

Well if they owned the cars, they'd still be paying for the milage. On top of that, they'd have insurance and maintenance costs. Even with a lease, they'd still be paying insurance. I don't see how it'd save them money at all.

Agreed... I don't see how they could save any money by leasing cars. Right now, they only pay (I assume) the Gov't deduction for mileage, which doesn't take into account any maintence or insurance costs of the vehicle. I believe they are doing this the right way. Now. there may be some tax writeoff if they leased the vehicles for business purposes but for a small business it may not be worth the hassle.

Stone Is God

It's hard to tell with out seeing the particulars on the info on what they are paying out per month for mileage vs lease, insurance, upkeep, etc.

You'd have to do some sort of analysis before you could make a sound choice.

acoustic guy

Stone Is God wrote:

It's hard to tell with out seeing the particulars on the info on what they are paying out per month for mileage vs lease, insurance, upkeep, etc.

You'd have to do some sort of analysis before you could make a sound choice.

I agree, hard to tell by this. But I cant see how leasing a car would make any sense. By letting the employees ues their cars, the company is saving a ton of money. My delivery van needs constant care. Oil changes, tire rotations etc... and you have to put the employees on the companies insurance which can be a big hassle. For certian plans you need to have minimum amount of drivers bla bla bla.... WAY better off paying for the miles driven IMO.

Lukin66

I would say stick with the mileage, but issue employees some business credit cards. Most banks offer cards with no annual fees for businesses, and on top of that, they'd earn cash back or rewards for these purchases that are going to be made and paid off the same month. That way, they can offset at least some of the cost with no further impact to the bottom line, and it's a better way to keep track of employee expenses, since they get a statement detailing every purchase.

Get_Right

Stone Is God wrote:

It's hard to tell with out seeing the particulars on the info on what they are paying out per month for mileage vs lease, insurance, upkeep, etc.

You'd have to do some sort of analysis before you could make a sound choice.

agreed crunch the numbers and include an analysis of the tax benefits vis a vis employee reimbursement (reportable as income and subject to withholding rules?) vs. additional overhead expenses-which might be bright line deductions

-plus consider purchasing used fleet vehicles which could be financed and would allow for a depreciation deduction

got to do the math and consider the administrative costs as well.

JOEJOEJOE

Besides the insurance issue, leasing a car also involves committing to many months of payments, even if the need for the car diminishes.