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apollo24
11-04-2006, 10:50 AM
Folks,

My employer is now giving me a car allowance of $600/month. However, the allowance appears on my pay stub and it is treated like compensation, so is taxed, so I end up with something like $390 or so- I need to check. Is that the way it works, or is this a mistake? I figured I would get a check for $600 every month. Or am I stupid to think so?

Thoughts?

Thanks, Ben

chappy
11-04-2006, 11:27 AM
Not sure what is normal here, but I get a check every month, with no taxes taken out. At the end of the year, I have to claim the checks as compensation and then pay taxes in one lump sum. I also get gas, tires, and all maintenance done by our mechanics as part of my compensation, which I don't have to pay tax on. I would assume it's a tax write off for the company as a business expense, but I'm not sure.
Rich

gcarter
11-04-2006, 12:42 PM
I'm self employed, this MAY make a difference, but as long as I have another car for personal use, I can deduct 80% of actual expenses of the vehicle I use for business. This is in addition to depreciation, etc. I would imagine if it would apply to you, your expenses might even exceed your allowance.

boxy
11-04-2006, 01:12 PM
Folks,
My employer is now giving me a car allowance of $600/month. However, the allowance appears on my pay stub and it is treated like compensation, so is taxed, so I end up with something like $390 or so- I need to check. Is that the way it works, or is this a mistake? I figured I would get a check for $600 every month. Or am I stupid to think so?
Thoughts?
Thanks, Ben

Not sure how it works South of the Border, but up here it's pay now, or pay later. It's a taxable benefit..

Greg K
11-04-2006, 02:02 PM
From the IRS:
Reimbursement, allowance, or advance. A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Arrangements include per diem and car allowances.

A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. (The term “incidental expenses” is defined in chapter 1 under Standard Meal Allowance.) A car allowance is an amount your employer gives you for the business use of your car.

Your employer should tell you what method of reimbursement is used and what records you must provide.

Per Diem and Car Allowances
If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all of the following conditions apply.

Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.

The allowance is similar in form to and not more than the federal rate (defined later).

You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1) within a reasonable period of time.

You are not related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.

If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. In this case, you must be able to prove your expenses to the IRS.

For more info
http://www.irs.gov/publications/p463/ch06.html#d0e6845

gcarter
11-04-2006, 05:48 PM
Well, one thing for sure, as taxed income you don't have to provide anything. Use it for anything you want; car payments, insurance and maintenance, or save it and take a nice vacation.

Ed Donnelly
11-04-2006, 07:03 PM
I get $8.00 an hr. truck allowance, approx $15,000 per year. I deduct gas, insurance, lease payments, and maintenance. At the end of the year I pay taxes on the leftover..I sold my paid for truck for cash rather than trading it in for the new truck..got every option and took out the extended warranty, to get my lease payments as high as possible. I claim 100% of the truck as I have a 2nd vehicle for personal use.....Ed

wrussellw
11-04-2006, 07:52 PM
Apollo
I am a CPA, but check with your tax preparer. Basically since this is being reported as taxable income to you, you will be able to deduct a per mile amount for business miles or the percentage of actual expenses, whichever is greater. Driving from your home to work each day is not deductible.
Actual expenses include gas, repairs, insurance, tolls, parking, etc. If your car is leased then lease payments, if not then depreciation. You will need to work both methods to determine which is best for you. There are also advantages the year te auto is purchased to deduct additional depreciation.
Also certain hybrids have additional tax credit options.
Be sure and keep records of mileage and expenses.