Is your luxury car deductible?

Answer: It depends

Let us look at two court cases:

In R.J. Denison, 36 TCM 1759 a securities investment advisor who operated as an S- Corporation was allowed his deductions for a chauffeured luxury automobile. However, in David M. Connelly v. Commissioner, a plastic surgeon who operated a personal service corporation was disallowed the deduction for the lease of a Rolls Royce. So what was the difference?

The investment advisor regularly transported wealthy investors in the chauffeured automobile. Additionally, the advisor regularly traveled in congested traffic situations which was also in the vicinity of his business location. For these two reasons the courts viewed the expenses as “ordinary and necessary” and not “extravagant”. On the contrary, the plastic surgeon failed to prove that the Rolls Royce was used for anything aside from his own personal benefit.

The moral of the story, be reasonable. Expenses that are not “ordinary and necessary” will be disallowed.

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