Luxury Cars, Car Shows, and the Myth of the “Marketing Deduction”

Every year, someone walks into our office with a grin and a gleaming new “business asset” — a Ferrari, a Porsche, maybe even a pair of them. Well, that’s not entirely true since over 80% of our clients live outside of Colorado, but don’t let the facts get in the way of a good story. The story usually starts the same way: “I use them for marketing. I go to car shows. It’s a legitimate write-off.”

And every time, WCG CPAs & Advisors responds with the same skeptical shrug. While you might think your Aston Martin doubles as a rolling billboard, even in racing green, the Tax Court tends to see something else entirely: personal enjoyment cleverly disguised as business expense. Or perhaps not so cleverly.

Over the years, a handful of tax court cases have driven this point home with precision (ok, bad pun) — yachts, race cars, and even attorneys trying to write off their weekend hobbies. The common thread? The taxpayers lost every single time.

Let’s take a closer look at why these arguments fail, how the law actually reads, and what counts as real advertising versus creative fiction.

The Temptation: Two Sports Cars and a Story

The setup is easy to understand. You own a single-member LLC taxed as an S corporation. You’re successful, and you’d like to have something nice that maybe, just maybe, can earn its keep on the tax return. So you buy one luxury car. Then another. You tell yourself they’re “business development tools” — a way to make an impression at networking events, to connect with the right kind of clients, or to “represent your brand.”

In theory, this doesn’t sound outrageous. If you deal with affluent clients, showing up in a high-end car might seem like on-brand marketing. The problem is that the tax code doesn’t see it the same way — it cares about evidence, documentation, and reasonableness. When the IRS looks at your business, it asks two questions:

1. Is this expense “ordinary” in your industry?
2. Is it “necessary” to operate your business?

A financial planner or high-end attorney showing up at a car show to “drum up leads” doesn’t check either box. Two exotic cars in a one-person S Corp? That’s a red flag wrapped in Italian leather. Oh, but that Italian leather nicely broken in on a Ferrari in resale red is sooooo appealing, isn’t it?

What the Law Actually Says

The rules here are not ambiguous — they’ve been written and tested for decades. Under IRC Section 162, a deductible business expense must be “ordinary and necessary” for your trade or business. “Ordinary” means it’s common and accepted in your industry; “necessary” means it’s appropriate and helpful, not extravagant or personal.

Next comes IRC Section 274(d), which covers “listed property” — cars, boats, airplanes, computers, and anything that could easily double as a personal toy. These assets come with strict substantiation rules: you need contemporaneous logs, dates, destinations, mileage, and purpose for every claimed use. “I used it for business” doesn’t count by itself; you need evidence.

Then there’s IRC Section 280F, which caps depreciation on “luxury automobiles.” Even if the car is 100% business use (which almost never happens), there’s a hard limit to how much you can deduct through depreciation. The tax code does not reward extravagance. Shocker, right?

Put it all together, and you get a simple principle: the more the asset looks like a personal indulgence, the harder it is to prove it’s a business necessity.

The $120,000 Question: Economic Reality Matters

Here’s where common sense joins the conversation. No one in their right mind would spend $120,000 on a car just to serve three rental properties or an online shop selling home goods. The scale doesn’t make sense. The IRS doesn’t need a psychology degree to recognize that you are spending $120,000 not on utility but rather on personal desire.

When the cost of an asset far exceeds the “utility” it provides to the business, auditors assume there’s a personal motive. A modest SUV for property inspections? Sure. A McLaren for “tenant visits”? Not likely. Ah, but that orange with black accents is such a sexy color.

Economic reasonableness is an unwritten rule that runs through nearly every tax case. Courts routinely evaluate whether the expense aligns with the scope and size of the business. A one-person S Corp with $150,000 in annual revenue claiming a six-figure luxury car as a necessity is waving a red flag, in true Tifosi style. The expense might exist, but the business justification doesn’t.

And this isn’t about jealousy or judgment — it’s about scale. The IRS expects business owners to spend in proportion to their operations. When luxury enters the picture, the personal component becomes impossible to ignore. Otherwise it could get out of hand very quickly, and the tax code and tax courts recognize the possible runaway train and put the brakes on it.

Three Cases That Drove the Point Home

The courts have heard this story before — and they haven’t been impressed.

Cohen v. Commissioner (T.C. Memo. 2011-235)

Jeffrey Cohen, a self-described “serial entrepreneur,” owned a Florida company that rented beach chairs and umbrellas. He bought a 67-foot, $2 million fishing yacht and claimed it as an advertising expense. His argument was that he took the yacht to fishing tournaments to mingle with wealthy potential clients.

The Tax Court wasn’t buying the fish story. Cohen had no client logs, no branding or signage on the yacht, and no documented business generated from the tournaments. The court found that the expenses weren’t “ordinary and necessary” — they were personal. As the Tax Court opinion put it,

Petitioner failed to establish that he made efforts to promote his business through use of the yacht.

Cohen got to keep his boat, but not the tax deduction. Anyone curious how renting beach chairs and umbrellas spins off enough cash for a $2 million yacht?

Berry v. Commissioner (T.C. Memo. 2021-42)

A construction company owner tried something similar — this time with a race car. He deducted over $120,000 in racing expenses, claiming the race team was “advertising” for his construction firm. Unfortunately, there were no company logos on the car, no leads generated from the races, and no nexus between drag racing and building homes.

The Tax Court politely disagreed with his interpretation of “advertising.” The expenses were personal hobby costs, not business expenses.

Avery v. Commissioner (T.C. Summ. Op. 2022; aff’d 10th Cir. 2024)

And then there’s Avery — a lawyer who tried to deduct car racing and car show expenses as “networking” for his law practice. The court found that racing was “not common or necessary in the legal profession,” and the taxpayer’s enjoyment of the activity made the business motive questionable at best.

When the case reached the Tenth Circuit, the appellate judges agreed: while lawyers may enjoy fast cars, that doesn’t make the racetrack a deductible marketing expense. Bummer.

Each of these taxpayers had a clever story. Each called it “advertising.” And each failed the same test: a lack of credible, documented evidence showing that the expense had a proximate relationship to their actual business income.

“But I Go to Car Shows — That’s Networking!”

Maybe you do. But networking, by itself, isn’t a deductible business purpose unless it’s part of a documented and measurable marketing effort. Attending a car show because you enjoy the cars and happen to meet a few clients doesn’t make the event a business expense — that’s like claiming your golf trip was a deductible sales call because you discussed work between holes.

Courts and IRS auditors look for proximate cause — a clear, direct relationship between the expense and your business. The car show defense often collapses because there’s no real plan, no follow-up, and no evidence that the event produced actual clients or revenue.

This is no different than country club dues. Section 274(a)(3) of the Internal Revenue Code flat-out says (more car puns)-

No deduction shall be allowed for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose.

That means any dues paid to a country club, golf club, athletic club, airline club, social club, yacht club — even if you claim it’s for networking or client entertainment — are nondeductible. Car shows? Racing events? Sailing regatta? All very similar to the club membership concept above.

The silver lining is that meals with business associates at your country club are tax deductible, and this includes renting the club’s banquet hall for a presentation or similar event.

What “Does” Work: Car Wraps and Real Advertising

Now, let’s give credit where it’s due: there are legitimate ways to use your vehicle for advertising. A full wrap with your company’s name, logo, phone number, and website? Absolutely deductible as advertising expense. Even door magnets can count, though the IRS tends to view removable signage with more skepticism.

The cost of the wrap or magnets is deductible in full as advertising. However, the rest of the car’s expenses — fuel, maintenance, insurance — must still be prorated for business miles. You can’t suddenly treat every grocery run as a marketing campaign just because your logo is on the back window. Yeah, don’t believe your bartender or produce clerk.

And no, wrapping a Lamborghini in your company logo doesn’t turn it into a tax shelter. A $3,000 wrap on a $300,000 car still looks like a $300,000 car. The IRS notices that too, and privately scolds you for taking a lovely Urus and wrapping it with a logo. You should probably be arrested for something like that.