Writing Off Coffee Expenses
A blog about writing off coffee expenses? That can only mean one thing.
It is tax season! That mysterious season where working-class Americans send their money to Washington DC and Rich Americans send their money to offshore accounts. I kid. That doesn’t happen, right?
I am one of those who if my tax returns aren’t filed early in February, I get a little nervous (also known as a weirdo). I also try to be as honest as possible. I don’t want unnecessary scrutiny from the IRS and more importantly, I don’t want to raise my 17 dependents to be dishonest. Again, I jest.
With so many people working from home in 2020, and a spike in coffee consumption, I started wondering how employees, companies, and the self-employed might write off their coffee expenses.
As you read this, please know that I am not a tax professional, do not intend this information as any type of financial or legal advice, and you should consult with your tax professional regarding your particular circumstance.
What items might be Considered Coffee Related Expenses
– Coffee / Coffee Subscription
– Company logo mugs
– Consumables (filters, stirrers, disposable cups, cream, sugar, sleeves)
– Brewing equipment (scale, maker, grinder, storage, kettle, vessel)
– Coffee urns (for meetings and events)
– Shelving or Stands for cups and accessories
– Brewing equipment cleaner
– Required signage
– Composting equipment (this depends on the State but some have tax credits for gear designed for composting office waste.)
– If you are in the industry, you can also write off seminars, educational resources and equipment for getting your message out.
Who Can Claim Coffee as an expense?
Let’s look at a few scenarios to see where you might fall.
If you are walking to work as an employee or a company owner and stop by to grab a cup of Joe from your local café, and think to yourself, “I need this, this is a legitimate business expense for productivity.” You may feel it to be correct but the IRS would disagree. That is a personal expense, bought on personal time, brought into the company. No deduction.
If, however you invested in a brewing machine for the office (as a company owner/company) got a coffee subscription in an effort to make sure your employees were caffeinated and productive…the IRS would accept that as a legitimate business expense. This is a 100% tax-deductible coffee expense.
If you are a W2 employee who had to work at home this past year, you may think, “I can invest in nice coffee equipment and write it off.” Sadly though, the IRS would not agree. In 2017, The Tax Cuts and Jobs Act (TCJA) eliminated the misc. deduction for home office expenses.
The only exception is for the Self-Employed and they would need to expense on a Schedule C provided they met the requirements. Requirements include having a dedicated space used for no other purpose, and proof that the majority of your work was done there consistently. If you and your spouse both had to work from home, you cannot double claim the space.
So generally speaking, companies, company owners, and the self-employed would have a legitimate way to write off coffee infrastructure, subscriptions, etc. if used for the benefit of the company as a whole. Coffee expenses for regular employees are much harder to justify.
Avoiding Red Flags is key. Jay Leno jokes that if there is any money left in your bank account after tax season…that’s a red flag. There are certain Red Flags that can be identified when expensing so be careful to make sure each expense is legitimate and can be verified as such.
Luxury Items– If you are a company owner and invest $100K to build an espresso bar to up productivity, be careful. If you are Google or Apple, you probably have a legitimate claim, if your gross sales are $250k annually, the IRS is going to flag this expense.
Non-Allowable Expenses– Let’s say you are starting a new business with the $60 you found in the mattress and are using the local café for the free WIFI to network and develop your website. You might think, “I am working here so my coffee is a legit expense because I need to buy it to access the free internet. Sorry, the IRS would consider this a personal expense.
Too Much Travel– Are you really traveling for business or traveling to the other side of town? Based on a formula of jobs and corresponding travel patterns, if you exceed 20% of those norms in travel-related expenses, an audit might be ordered.
Too Much Entertaining– Meals, coffees and cake, client dinners, can all be business expenses but the IRS can be really strict when mixing business and pleasure. That Valentines Day dinner with your spouse where you “discussed” the business isn’t going to qualify. Keep a detailed log of where, when, how much, with who and what was accomplished to ensure your expenses qualify. 20% above industry norm can trigger an audit.
Other Coffee Expense Scenarios
Here a few other situations where you could conceivably write off some coffee-related expenses.
Meetings, Seminars, Training
If you invite clients to the office or hold large company meetings, trainings, or seminars, food and beverage (including coffee) can be a legitimate expense. Make sure you keep detailed records and receipts of how much you spent, why, and who was present. Coffee expenses can really add up so make sure you include coffee, cups, condiments, spoons, etc.
Out of Town
When you are traveling for business, out of town and overnight, up to 50% of your actual meal expenses can be deducted. Again, impeccable record keeping, receipts, notes, logs, protect you in the case of questions from the IRS. There is a standard meal allowance but it is almost always better to use actual expenses.
You can “donate” coffee to your church bake sale or event and as long as they are a registered charity you can deduct the expense.
If your business, group, or organization buys coffee to re-sell, you can deduct the purchase of the coffee as “cost of goods sold”.
If you buy coffee or coffee-related goods as props in a photo shoot or for a presentation, you can write it off. Just be sure the amount spent is reasonable to the amount earned.
If you write a blog, host a podcast, make YouTube videos and buy coffee/equipment to review, you are allowed to write it off as an expense.
$25 Per Client Per Year
You can give a coffee gift to your clients once a year and write off up to $25 per client.
The 2017 Tax Reform Law changed the way the IRS views entertainment. You can still take a client to lunch and expense it, but you can no longer take them to a baseball game, a sunset cruise, or a round of golf.
If you as a company are hosting a retirement party, an awards ceremony, or a Holiday party where your employees are in attendance and all are invited, you will most likely be able to write it off. However, taking all of your employees on a fishing trip to Alaska for bonding no longer qualifies as a legitimate expense.
In the end, good records, and a decent understanding of what coffee expenses are allowed will go a long way to make your filing easier. The spirit of the law says that “expenses need to be ordinary and necessary for doing business in order to qualify as a legitimate deduction.”
I wish you all luck as you navigate your taxes. April 15th is the deadline so start early and remember you are not allowed to claim your barista as a health care provider!
About the Author
Matt Carter is a retired teacher (1989-2018), a part-time musician, farmer, and currently manages Greenwell Farms Tour and Retail Store Operations.