The IRS May Be Eyeing You For An Audit If You Have This Type Of Vehicle

The IRS lets you deduct real business costs, but it does not count your daily commute as one of them because driving to and from work is seen as a personal cost. If you use one car for both work and personal errands, you can't claim all its costs as a business expense. The IRS could flag it and it could lead to an audit. TurboTax's 2025 guide warns that take-home vehicles often raise questions as the IRS assumes that most people use the same car for non-work tasks, like errands or personal trips. It is also clearly stated in Chapter 4 of Publication 463 that you can't deduct miles driven between your home and regular workplace because these are called commuting miles, and they must be left out when you calculate your business mileage.

What the IRS does to determine the agreeable mileage, as directed by the Internal Revenue Manual, is to compare your numbers with what obtains in your industry. This is called a vertical analysis. If your figures are far off from others in your field, it can raise questions. To stay safe, keep full records that show the purpose of every business trip you made with the car. In fact, keeping financial documents, especially as they pertain to how your money moves, should be a regular practice.

Section 179 of the Internal Revenue Code lets businesses deduct up to $1,250,000 of qualified property placed in service in 2025. The deduction starts to phase out when total purchases under Section 179 pass $3,130,000. Publication 946 confirms these limits and sets a cap for most SUVs. If the SUV weighs between 6,000 and 14,000 pounds (for example the luxurious Lexus ES car alternative), the first-year deduction is limited to $31,300. But pickups with a bed at least six feet long, cargo vans, and other heavy trucks over 6,000 pounds can still qualify for the full write-off.

Publication 463 explains the business-use rule. To claim a Section 179 deduction, the vehicle must be used more than 50% for work when it is placed in service. If it doesn't meet that mark, you'll need to depreciate the cost over time instead. The deduction is also adjusted based on your business-use percentage. If that use drops to 50% or less later, Publication 946 says you must "recapture" the extra, meaning you add the amount back to your income and pay tax on it. Drives to clients, job sites, or rental properties count as business use while personal trips like school runs, vacations, or shopping, do not.

Driving a company car might seem like a perk, but the IRS sees every personal mile as income. If and employer or an employee use the car for errands, school runs, or commuting, Publication 15-B calls it personal use. Its value must be added to Form W-2 and taxed like regular pay. The same publication gives three ways to calculate this; $1.50 per one-way trip (commuting rule), 70 cents per mile for 2025 (cents-per-mile rule), or the annual lease value. Pick one method and use it for the full year.

Employees should also keep a log that shows the date, odometer readings, destination, and reason for each trip. This helps prove which miles were for work and which were not. If the log shows business use at 50% or less, you'll need to undo any Section 179 or bonus write-off and pay back the tax. If you report late or miss key details, you may owe extra tax, a 20% penalty, and even face the trust-fund recovery penalty if payroll tax was not properly withheld.

For employers, add the dollar value of every personal mile to the worker's pay and put that amount in Form W-2 Box 1 so it is taxed for income, Social Security, and Medicare. You may also copy the same figure into Box 14, or an attached note, and label it "PUCC" (personal use of company car), per Patriot Software directive, so the worker and any IRS reviewer can see the benefit was reported.