I don't know about you, but there's a thin line between business and pleasure when I go out for happy hour. Usually I meet up with a potential client, a current client or a colleague to chat about something business related.
In my mind, I should be able to write it off. I mean, a couple glasses of martinis that lead to a new contract should be reconciled under the "I'm a grown woman running a grown-up's business" account.
But, a small part of me thought it would be best to see what the IRS had to say about it. During my research, I came across this awesome article by a company called Tallie who makes expense reporting hella easy.
Whether you're thinking about expensing your alcohol purchases to your company, or it's your business and you're wondering if you can write it off---this article will help shed some light on a very gray area of business.
Original article posted by Conner Sheppard at Tallie-Click the link to read
Alcohol as a beverage has been around for ages, with some of the earliest documentation dating back to 7000 BCE. That means that humans have been consuming alcohol for over 9,000 years! Now, the relationship between alcohol and societies has seen its ups and downs. The spectrum ranges from ancient cultures worshiping gods centered around alcohol to the U.S.’s modern-era Prohibition. Some could argue that a lot of greatness came from the convergence around alcohol, like the building of nations and the works of Ernest Hemingway and Edgar Allan Poe. While others could argue to the destruction it can cause, like the tens of thousands of deaths every year that are due to alcohol related incidents.
So, where does that leave us with alcohol’s role in the modern business world?
I know it, and you know it. Alcohol is in business. Now, by no means should alcohol consumption be pressured upon anyone, but it’s something that is very commonplace in society. A 9,000 year old habit won’t die easily.
According to Publication 463 by the IRS, a business-related meal expense “include(s) amounts spent for food, beverages, taxes, and related tips.” The terminology used by the IRS on this topic is actually quite vague, and leaves a lot to the individual auditor’s opinion in terms of acceptable beverages. Never in the publication does it state a specific quantity or dollar amount as “the line.” So, it’s hard to say exactly what is ordinary and necessary versus lavish and extravagant when it comes to expensing alcoholic beverages.
When discussing this topic with my CEO, Chris Farrell, we both agreed that taking Richard Branson for a business meal and expensing a $500 bottle of wine for the three of us would probably get the “OK” from the IRS. But, doing the same for an average client would likely not pass. This would suggest the qualification of “ordinary and necessary” is largely scenario-based.
Now consider taking a client to dinner and drinks, then expensing $100. The IRS probably won’t bat an eye. But, if you spend $500 on that same client, the expense might not pass. In this case, the qualification of “ordinary and necessary” is dollar-based.
But, what if you buy multiple drinks for $50 or, in the same scenario, buy a single bottle of wine for $100. In this situation, the pass/fail will probably fall on the quantity of alcohol.
Now picture your own scenario. Is your alcoholic expense judged on scenario, price, or quantity? Not only are the guidelines nondescript, but now there are three separate “options” for which your expense on alcohol can be deemed lavish or ordinary.
Expensing alcohol is an extremely tricky process and there’s no black and white cut-out for you to reference. So while we tackle the last of our 2013 IRS Tax Returns and come across those very vague alcohol related instances, remember this: when in doubt, don’t expense it.
Have you experienced a situation that involved expensing alcohol? Leave your questions and stories in the comments below!
Danetha Doe is a cloud accounting expert. A business coach and former NFL Cheerleader, she is on a mission to bring sexy back to the world of accounting.
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