Tag: deductible meals

Posted on by Jan Roberg

Deducting Your Starbucks Coffee on Your Income Tax Return

Starbucks coffee as a business expense

Meeting for coffee is a deductible business expense.

If you deduct business expenses on your tax return, then you probably already know that if you meet someone for a meal that you can deduct 50% of the bill as a “meal and entertainment” expense. You can’t deduct the cost of just yourself going to lunch, since you have to buy your own lunch anyway. For example: if I go to McDonald’s by myself this afternoon and get a Big Mac; even though I go during my business lunch hour–it’s not a deductible expense at all. But if I take Mike, my employee, to McDonald’s for lunch and I pay for his meal as well–then I can claim 50% of the bill as a business expense because we’ll be talking shop.

This is where Starbucks comes in. I suspect that more business is conducted at Starbucks coffe shops than anywhere else. It’s sort of every small business owner’s “office away from home”–neutral networking territory. If you do the whole networking thing, certainly you’ve had the “Let’s meet for coffee” meeting.

Coffee meetings are safe. Generally you’re not billing for time at a Starbucks meeting. Being an accountant, I think some people are afraid to come to my office. They think that if they walk though my door I’ll put the meter on and start billing them. (I’m not that bad, really!)

Many small business owners don’t have offices, so Starbucks is a good place to hold a meeting. I know some small business owners who spend hours at Starbucks. For the price of a cup of coffee you also get a table to work at and an internet connection.

So, how do Starbucks coffee receipts fit into your tax return? I’ve got two ways:

  1. 1. You meet a business acquaintance for coffee and you pick up the tab for both of you. Keep track of the meeting and you easily meet the 50% deductible rule.

  1. 2. You meet a business acquaintance for coffee but you only pay for your own coffee. (This is pretty common.) You can still probably claim this as a business expense but you have to be a little more careful. There’s an old 1953 court case (Sutter v. Commissioner of Internal Revenue http://www.leagle.com/decision/195319121ttc170_1172) that states that you can’t deduct entertainment expenses just for yourself if you’re paying what you normally pay for something.

So — If you’re going to Starbucks everyday and picking up a latte whether you’ve got a meeting or not– that’s a normal expense for you so a Dutch Treat Starbucks coffee isn’t a deductible business expense for you.

On the other hand, if you’re not buying gourmet coffee unless you’re at a business meeting, then you’d be allowed to claim that expense. The whole key here is to document, document, document.  For me–I pay a $30 fee to my office manager so that I may have coffee at work. At one cup a day, that works out to $1.50.  At Starbucks, my coffee costs $4.50;  so clearly, I’m not normally spending $4.50 on coffee unless I’m having a meeting.

Under the Sutter rules, I don’t have to subtract my normal coffee cost from what I spend, I can deduct 50% of the whole cost. I just have to be able to prove that my normal coffee cost is less than $4.50.

Does the IRS really go back to 1953 tax court cases when they audit returns? Yes, as a matter of fact, they do. Even though there have been significant changes to tax law since that case, Sutter is still invoked in audit cases with high entertainment expenses.

Personally, given how many people use Starbucks for their meeting rooms and internet connections, I think the IRS should allow a 100% deduction for Starbucks as a rent and computer expense. But don’t try that, it won’t fly with the IRS. The best you’ll get is a 50% deductible meals and entertainment expense.

Posted on by Jan Roberg

Claiming Meals as a Business Expense

Photo by loop_oh on Flickr.com

I was working on a client’s tax return and he had a whole lot receipts for business meals.  A whole lot.  I do a lot of tax returns and I’m pretty familiar with claiming meal expenses.  This guy wasn’t in one of the jobs that I normally associate with lots of meal expenses – so I had to ask him about it.

 

He told me, “Well yeah, I own my own company and my wife helps me and so we go out to dinner together all the time and we talk about work so I write it off as a business expense.”

 

Here’s the problem – that’s not going to fly with the IRS.  If you are just going out to dinner with your spouse, even if you do nothing but talk about business – well then, it’s not a deductible business expense.

 

I deal with this issue all the time.  Heck, my own husband will say, “Hey we talked about business, you can deduct our dinner!”  And yes, my husband often gives me excellent business advice during dinner (he’ll read this blog post so I have to say that) but I still can’t deduct having dinner with him for business purposes.  (As smart as he is at business, he stinks at taxes.)

 

Here’s the IRS rule:  “Generally you cannot deduct the cost of entertainment for your spouse or for the spouse of a customer.  However, you can deduct these costs if you can show you had a clear business purpose, rather than a personal or social purpose for providing the entertainment.”

 

So, I can bring my husband, Mark, along if I’m entertaining a client who needed to bring her husband along as well.  For example, someone is in from out of town and wouldn‘t want to leave her husband all alone in the hotel.  But if I’m just having dinner with my husband alone – no deduction.

 

There are lots of other rules about claiming meals as well.  You’re supposed to record the expense “contemporaneously”.  That’s a fancy way of saying you should write down on the receipt who and why.  For example, Helene is one of my advertising people.  We both like the grand slam breakfast so I’ll meet her at Denny’s.  On the receipt I would write, “Helene, advertising.”  Quite frankly, Helene is the only person I meet at Denny’s so if I’ve got a Denny’s receipt, I know who I was meeting and what we were talking about.  But a Bread Company receipt?  Well I probably meet someone there once a week.  If I don’t write that down that might not survive an audit.  It’s just a good business practice to write who and what on the receipt every time.

 

Here’s a silly little tip that makes the IRS happy:  when you’re paying for a business meal with your credit card, write the name and reason for the meeting on the slip that you sign and give to your waitress.   That way, your “contemporaneous reporting requirement” is proved on your receipt carbon.  Your waitress might think you’re a little weird but chances are she won’t even notice.

 

If you want more information about entertainment meal expenses, you can check out the IRS publication 463:  http://www.irs.gov/pub/irs-pdf/p463.pdf

 

And now, I’m headed off to a non-deductible dinner with my husband!