Car lease?

[jhwkr542]

I'll be starting my first post-fellowship job July 1 and am interested to see what other people would do with this situation.  My new private practice/partner-track position provides all partners and employees with $750/mo. to lease a car.  You choose the car, negotiate with the dealer, and have the company sign off on it.  If you lease, the group will pay for tags, insurance, and gas.  Most of this will be reported to you as income (80-90%, depending on how much is used for personal use/commuting to and from work).  The difference between the $750/mo and lease payment will be put on your paycheck; if your lease is over $750/mo, you'd have to cover the difference.  If you purchase a car instead of lease, you'll get the $750/mo as income but won't get gas, tags, or insurance paid for.

Currently, my car is the same one I bought used in medical school for $4k.  It's done well, but with a growing family and its age/mileage, I'm about due for a different car.  The mileage on a lease would be an issue since I live pretty far from one of the hospitals I'll be at, but I can get around that by borrowing my wife's car on days she doesn't work. We'd trade cars and I'd use more miles on her purchased car.

Knowing that I need a new car, would you guys go for the lease or purchase a cheaper, used car and forego the gas, insurance, and tags the company would be paying?

[retinadoc]

Can you lease a used car? Buying is usually better than leasing, but if you're getting gas, tags, and insurance AND pocketing the difference -- seems like a great deal for you as an employee. Not sure how this makes sense for the partnership though...

[jfoxcpacfp]

You need to take the lease. Using the Annual Lease-Value Table, you almost always pay taxes on a lower amount than the actual lease. In addition, you get gas, insurance, tags, all on a depreciating asset. Of course, this is a hefty price tag for the group, but the partners are also getting some decent benefits and I imagine it's all calculated into your total package.

[The White Coat Investor]

Not sure I'd feel comfortable in a practice where having a fancy new car was such a high priority it was basically mandated like that. You ought to be able to lease something pretty snazzy for $750 a month.

[jhwkr542]

Thanks for the responses. I feel like I have to lease as well despite not really wanting to, so I'm glad others agree. I'll see if I can convince the group to do away with this, but I doubt it. I'd rather buy a used car and pocket all the extra because I don't value cars.

This is one of the better practices in town, so avoiding this practice because of this benefit would be self destructive. Oh well, being forced to lease a new car probably won't be as bad as it sounds.

[RJ]

Lol. A first world problem if I ever saw one!

[G]

After you've been with the group for awhile--and figured out why you need this and how it benefits the new hires and/or partners--can you submit a guest post?  I feel like I'm missing out on something.  BTW, keep the clunker even if you buy/lease another car.  Ditch any nonessential insurance and drive that to work for free.  You can park it next to the partners' Ferraris and Porsches.

[jhwkr542]

I'll consider it if I find some useful information.  I'm guessing it's for tax purposes, and someone a long time ago liked leasing cars.  Probably turned into lifestyle creep for everyone else.  I'm not knowledgeable enough on the tax code to quantify it, but I think that's the idea.  I've thought about leasing a car for as many years and many miles as I can, parking it at the hospital, only driving it between hospitals, and commute with my clunker.  Then, none of that money would be taxable, and I could buy an essentially brand new car after the lease ends.  Brand new car for the price of a used one.  If someone personally did this, it would make no sense financially.

[G]

Oh, man, you hit on something!  A free garage/storage space!!! 

[jfoxcpacfp]

jhwkr542 wrote:

I’ll consider it if I find some useful information.  I’m guessing it’s for tax purposes, and someone a long time ago liked leasing cars.  Probably turned into lifestyle creep for everyone else.  I’m not knowledgeable enough on the tax code to quantify it, but I think that’s the idea.  I’ve thought about leasing a car for as many years and many miles as I can, parking it at the hospital, only driving it between hospitals, and commute with my clunker.  Then, none of that money would be taxable, and I could buy an essentially brand new car after the lease ends.  Brand new car for the price of a used one.  If someone personally did this, it would make no sense financially.

Click to expand...

There are a lot of ways to spend your money that make no sense financially other than saving taxes. CPAs frequently suggest that clients "buy a lot of assets" at the end of year to save on taxes. Really? Imo, it's imperative to consider the economic impact beyond simple tax savings. Never let the tax tail wag the financial dog.

[NapoleanDynamite]

Lease it....There are tax advantages for the partners as it relates to leasing through the business vs buying.  I would lease something decent at about 350 bucks a month and take the cash on the other 400 a month and put it in your Roth IRA (you can fund over half of your Roth for the year(after taxes) with the extra money you cash out with).

[ACN]

Does anyone have a spreadsheet to calculate the benefits of lease vs buy that they would be willing to share ?

Another question, when you are in a PP group, would it not be an advantage to lease a car through your LLC (say 75% business/25% personal) and write off the 75% for tax purposes?  Or better yet, have your old POS car sit in your garage as your "personal" vehicle (that you never use), then lease and write off 100% of your business vehicle (maybe a little more unethical)?

[E5797]

@jhwrk542--Have you figured out the benefit for the group for leasing cars?

[lost]

1) What is your contract term? Who pays for the car when the contract ends?!!!

2) Can you negotiate with your group to pay you 750/mo extra and keep using a used car?

3) If you plan to ride a luxury car (over 90k price tag), leasing makes sense. Remember, you cannot (rather should not) buy something simple with 750/month.

4) Psychologically, will you be able to downsize to a used car when the lease is over?

5) Who pays for the dents/scratches/leather damage at the end of lease? That bill will could be >$1500 before you blink your eye.

6) Who pays for servicing the car?

7) Who pays for the tire change at the end of lease? The leasing company will expect that the car tires has certain tread depth or you will be required to change tires or pay extra $$. If your car has run flat tires, it will be $$$$.

Sorry for making this not so simple.

[jhwkr542]

Whoa, this is an old thread!

I ended up getting the lease because there were multiple benefits for my getting it.  Namely, I'd get gas/insurance/registration all paid for.  I'd lose all that compensation if I didn't get it.  I thought about it in terms of a 401k match in that way.  Now, if I'm correct, the gas and lease that gets used for personal use gets reported as tax.  In the end, the price for getting a lease on a new car vs buying a used car were fairly comparable.  After this lease, I plan to get a cheaper car.  While the MDX is nice, I'd be fine with other cars.  Believe it or not, given the timing of it all, leasing a Honda Pilot would have been more expensive than the MDX!!

 

@lost, I'm not sure which contract you're referring to (mine vs the car's), but the car is leased in the company's name.  If I gets axed (hasn't happened yet!), the car is the company's.  I could take the 750/mo as cash but would lose out on all the other pay for the car mentioned above.  I'm already planning on going to a cheaper SUV.  I do want the size for the 3 kids and in the snow/ice.  Company reimburses me for all servicing, damage, etc, owed at the end of the lease.