Expense reporting

Is alcohol a tax write-off?

Hanging out with David Leary from Quickbooks. Over some delicious gin martinis and bourbon drinks.

Hanging out with David Leary from Quickbooks. Over some delicious gin martinis and bourbon drinks.

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?

Money and Mimosas™, my weekly bookkeeping date with me, myself and I. A tax write-off? I sure hope so.

Money and Mimosas™, my weekly bookkeeping date with me, myself and I. A tax write-off? I sure hope so.

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.

Hanging out with the awesome Tallie team.

Hanging out with the awesome Tallie team.

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.

Confusing, right?

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.

For weekly accounting and business tips, sign up for my weekly Money and Mimosas newsletter.

Want to attract the best independent contractors? Make sure you do these 3 things

One of the toughest aspects of balancing your company's cash flow is finding the balance between paying your independent contractors while waiting for payment from your clients.

As the former Controller for a multi-million dollar creative firm, this was one of the consistent areas of the business that kept me up at night. Mostly because the "financial" part of my brain would say that we needed to wait until we received payment before cutting checks to our freelancers.

But, the other not so business-y side of my brain remembered what it was like to be an independent contractor waiting anxiously for a payment to cover my own expenses. And sometimes the wait would be 60-90 days after the service was delivered. Although this was common within the industry, it was the agency's that made the extra effort to pay me within 30 days that I loved working for the most.

And when I became the Controller, I consciously chose to listen to that other side of my brain to determine when to issue payment to our contractors. We consistently paid our freelancers within 30 days of the completed assignment, with an internal goal of issuing payment within two weeks. Whether or not we received payment from the client.

Because, let's face it. Independent contractors have the ability to work for anyone and there are hundreds of agencies available to hire them. Just like the contractor, your company needs to stand out in order to attract the best and most reliable talent. And the best way to do this is to treat your freelancers and contractors like gold.

But, I also recognized that it can be tough to do this when you have big revenue projects where the client doesn't pay you in a timely fashion. Some of my firm's big clients like Verizon and T.D. Williamson had such large Accounts Payable departments that it could take up to 180 days to receive a check from them. 

To counteract this, one of the initiatives that I put in place was to make sure all large contracts had a monthly retainer component. This way we would have enough cash to pay our bills, including our contractors. Once the project was completed, we would deduct those payments from our final bill. 

For example, prior to me taking the Controller position, if we had a $1M project with a large company our contract would state that we would receive payment once a quarter after they received an invoice from us. Unfortunately, once they received the invoice it could take another 30 days to see the money. For us, that meant we wouldn't see any cash for four solid months.

Not ok when you have rent, salaries and expenses to cover. So, I changed that. Going forward, our contracts stated that every month we required a payment of $60K. Period. No exchange of invoices and expense reports. All of that would be tallied up and submitted at the end.

Whatever you decide to do with your company, work with your accountant and find a way to make sure you can pay your contractors as quickly as possible. It's good karma for your business and it helps make sure that your company always attracts the best contractors. 

Here are three ways to help your company attract the best freelancer talent:

  1. Pay all contractors within 30 days. Want to go above and beyond? Pay your freelancers within 2 weeks. I've seen some agencies guarantee payment within 7 days. Believe me, this goes a long way in building credibility and attracting the very best talent.
  2. Update your contracts with larger clients to include a monthly retainer component.
  3. Use an cloud based system to keep track of expenses and logged hours. Tools like Tallie and Zen Payroll make it really easy for your bookkeeper to issue payment quickly and gather all the necessary info to generate an invoice.

I want to hear from you. Which of these three tips will you start implementing within your company?

Be sure to check out my free webinar with Kashoo on August 21 where I'll cover 5 Ways to Improve Your Cash Flow. Kashoo is a simple cloud accounting software that received a 4.25 out of 5 stars rating by the CPA Practice AdvisorClick here to sign up.

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.

For weekly accounting tips, sign up for my weekly Money and Mimosas newsletter.