Employer Vehicle Used for Both Business and Personal Use
This is always on ongoing issue with clients. We ended up firing a client over this issue. We initially prepared his taxes without the vehicle expenses for his Schedule C since he was unable to and refused to provide the required backup. Now he signed off on the return after the presentation. But later explained that he wanted to deduct 100% of his vehicle as he had always done. In my discussions with him he kept changing his story about business usage. As a geriatric insurance agent without an office only collecting trails, I argued that the auto was purely personal usage, but if he wanted to stop by the office with his records e could discuss further. Since he seldom traveled and had no records he declined. We suggested that he may be happier with another CPA, preferable one who would be dead before the IRS audited the tax return and found them complicit of tax fraud.
The IRS records state:
Employer Vehicle Used for Both Business and Personal Use
If an employer-provided vehicle is used for both business and personal purposes, substantiated business use is not taxable to the employee (see Substantiation Requirements, below). Personal use is taxable to the employee as wages. The employer can choose to include all use as wages; in this case, the employee may pay the employer for personal use rather than having it treated as wages. Reg. § 1.61-21(c)
Reimbursement for Use of Employee-Owned Vehicle
Mileage-rate reimbursements for allowable business travel are excludable from the wages of the employee, if equal to or less than the standard Federal mileage rate. Reg§1.274(g)(2)(iii); Reg. § 1.274-5
Reimbursements for non-business travel, including commuting, are always taxable even if paid at or below the Federal mileage rate and are to be included in regular wages and subject to all income and employment taxes. (But see De Minimis Nontaxable Personal Use, later.)