Calling All CPAs - Beer Tax Deductible?

[Matt Foley]

Ok, I'm just spitballing here. Here me out. I have a theory.

I have recently set up a blog where I review new beers I try, new books about beer, places I drink beer etc. Lets say I throw up a few google ads, Amazon Ads, maybe I get lucky down the road and generate traffic warranting charging for ad space. Maybe I start selling some Zazzle or Cafe Press gear. In any event, attempting to generate profit.

What brings people to the site are my reviews. In order to review, I must drink beer (and I'm willing to do it). Isn't the cost of that beer a reasonable and necessary business expense? Can't I deduct it? If I can avoid it as a "hobby loss" I may even generate a loss that would lower my tax burden from other income producing activity. All from drinking beer. That would be cool.

Ok, perhaps this should have been posted under drunken ramblings. Lets here from the accountants. Feel free to post your circular 230 disclosures.

 

[Sea]

Not an accountant, but it seems perfectly reasonable to me.

 

[brewt00l]

Let's just look at this from a very broad perspective...

1. You're going into this with the expectation of not turning a profit..even if you slip under the radar a couple times, you can't sustain/support your profit motive for long. Figure out how to make drinking beer pay you money first and worry about your taxes second.

2. A $10 loss prb is not going to equal a $10 reduction on your taxes because of how your tax liability is calculated. Prepare your taxes and see how much bottom line savings you get for each $100 added to your deductions...then, consider if the risk and penalties are worth such little yield.

 

[sonetlumiere85]

I would have to assume that you'd be qualifying this as a miscellaneous deduction? In which case the limit is $2,000 I believe. Also I'm not sure that something which carries a "sin tax" in many states is going to work that well for you. If you could justify its use as a promotional item, maybe.

 

[McKBrew]

I don't know that you could deduct the beer as a legitimate business expense. If you do start to turn a profit and treat it as a business, anything related to that, like a new computer, office supplies, clothing, internet access, etc... should be tax deductable.

 

[giligson]

Let's just look at this from a very broad perspective...

1. You're going into this with the expectation of not turning a profit..even if you slip under the radar a couple times, you can't sustain/support your profit motive for long. Figure out how to make drinking beer pay you money first and worry about your taxes second.

2. A $10 loss prb is not going to equal a $10 reduction on your taxes because of how your tax liability is calculated. Prepare your taxes and see how much bottom line savings you get for each $100 added to your deductions...then, consider if the risk and penalties are worth such little yield.

He's right, the deduction is going to be depending on how much you are earning etc - If you are making that much money on your model then you probably aren't even going to be worried about deducting your drinkin' beers. You want to deduct beer as a business expense? Then start a liquor store or bar.

 

[olllllo]

Matt, it's this type of thinking that keeps you living- in a van- down by the river.

 

[davefleck]

talk to your CPA but i think 3 of the first 5 years you need to show some sort of profit otherwise the IRS will consider it a hobby.

You also won't be able to write off a case if you're reviewing A beer. Unless you're using the opnions of a lot of people.

Really, it sounds like a PITA unless you really WANT to create a review site.
In which case you will have much larger write offs like getting your certification as a judge. You'll want some proof you are a 'expert' other then your bud drinking cousin's thoughts.

 

[david_42]

You would have an extremely difficult time convincing an auditor that this was anything other than a hobby. Even if you set up a company, the expectation is that you turn a profit most years and web ads aren't a business model. Unless you can get a book published, lots of luck.

 

[Beerzoid]

I don't have my CPA yet, but like others have mentioned it would be most likely counted as a hobby.

 

[XXguy]

"A reasonable expectation of profit" was the term my accountant used when I was writing off a hobby as a business loss...... He said if I couldn't prove to the IRS that there was some reasonable expectation that I was going to find a way to make a profit, then I really couldn't treat it as a business.

With all the money people make online through ads & click-throughs.... it would seem to me that there might be a reasonable expectation you could make a profit if you had enough traffic.

 

[Grinder12000]

You need to set up a separate buisness checking account and keep records. Plsu you will have to show you are ATTEMPTING to turn a profit.

On the other side of the coin - The IRS is way way way overextended with very very very few auditors.

The big question is how are you making money??? I know my blogs can bring in $300 a month with advertising. You can also write off your internet connection if you are feeling bold but then you have to show how much of your buisness is on the net.

 

[ewbish]

1. You can't just write of hobby expenses.......you write them off against any income incidently derived from the hobby.

2. You can write off loss of a business enterprise. A business enterprise must be undertaken with the expectation of making a profit. Create a company, register the "doing business as" name, may have to run it in the business ad section of local paper..."john doe is notifying the public that he will be doing business as ye old beer taster".

3. Since your described business intends to make a profit by selling add space.......at the end of the year, add up everything you spent reviewing beer. Subtract it from the revenue made by selling ad space. Oh wait, you sold none......this is your loss. You can write this off. Doing it 4 years in a row counters the "intent of making a profit". So you do it 3 years, then retire the company. Form another company and repeat.

 

[Sigafoos]

Wow, I've been thinking about this for another hobby of mine. Writing off expenses when I wasn't going to be making a profit seemed like a scam, so it's good to know I shouldn't even try it. What if you just wanted to be a legal entity? aka 'Beer Blog X is not going to make money, but is officially registered.' Can you just get a DBA and call it quits?

 

[joety]

I don't know that you could deduct the beer as a legitimate business expense. If you do start to turn a profit and treat it as a business, anything related to that, like a new computer, office supplies, clothing, internet access, etc... should be tax deductable.

Clothing is almost NEVER deductible. It has to be some sort of uniform that you would not normally wear out in public. There is a ton of case law on this.

A computer is listed property, so you would need to report the business use percentage and only be able to deduct that percentage.

To avoid hobby loss rules, you'd need to turn a profit in two out of five years, but I'm a little rusty. I would think the beer consumed during the actual broadcast could be used to reduce reported revenues.

Edit: I am a CPA, but just being a CPA does not make someone a tax expert, nor does being an attorney. Enrolled Agents (EA's) are by nature, tax experts, but in my state, anyone can prepare tax returns professionally. H&R Block will hire anyone who can walk and chew gum.

 

[talenos]

Yes clothing, is not deductible, unless it's a uniform. Can't write off a business suit, unless you're an actor and need one for your role that isn't provided.

If you want to make this a business, then you need to treat it as one. Get the business name registered, get a separate checking account for it. Keep it totally separate from your personal stuff.

My cousin actually has a similar type of site that makes him a few grand a year in revenue and he does exactly what he's talking about. If you're not serious about making this into a business then don't even try, but if you are there are some steps you can take to make sure you don't get flagged.

 

[joety]

Can't write off a business suit, unless you're an actor and need one for your role that isn't provided.

Unless there has been a new case out there I'm not aware of, that would not qualify, regardless of whehter you would ever wear the suit again. The fact that you COULD wear the suit for other occassions would make it nondeductible. It would have to be some sort of flashing neon suit to meet the test.

 

[johnnydrama]

I'm a CPA candidate, and generally not a tax specialist. But if you are running it like a true business (start an LLC, keep accurate records, business bank accounts) and actually turn a profit from it, then I see no reason why you couldn't deduct the cost of beer.

Regarding clothes, there is alot of case law on this, and some of it is pretty odd. An example is that a person who is in the lower or middle class who works in a position where they need particularly expensive clothes (think a sales job in an upscale department store), they can deduct those expensive clothes since they would not be used in the normal course of that person's life. The moral of this is to get a CPA who is actually a tax expert to figure this all out for you.

 

[lowlife]

Unless there has been a new case out there I'm not aware of, that would not qualify, regardless of whehter you would ever wear the suit again. The fact that you COULD wear the suit for other occassions would make it nondeductible. It would have to be some sort of flashing neon suit to meet the test.

Pretty much every tax deduction could be used for something else. Just my opinion.

 

[COLObrewer]

Have you gotten your federal tax ID # yet? Keep track of every single second you spend at "work".

 

[samc]

Deduct this year. Deduct next year. If you have no income at that point throw in the towel and forget about it.

Most likely talking amounts of money so small that it is not worth your time or the IRS time to think about it.

You don't really need to have separate bank accounts or fed id #'s, you just need to have records that reflect the transactions in a clear manner for audit purposes. When I used to do tax returns in an accounting firm we had many clients come in with the shoebox filled with receipts and pieces of paper noting transactions. We did what was known as a write-up, which converted that mess into a usable format for figuring the P&L. There is no reason that I know of that if you were audited you could not just push that shoebox over to the IRS agent and say have at it. Many sole proprietors file schedule C on the tax return using social security number. Forget LLC's and corporations as the cost of set up and maintenance would kill any deductions you might have in a small venture.

Maybe Bernie Madoff's CPA would be available for a consultation on this subject. LOL

 

[joety]

Pretty much every tax deduction could be used for something else. Just my opinion.

Unfortunately, clothing is specifically addressed, as opposed to most other types of deductions. No one's going to question whether you really read the Wall Street Journal or use it to line your bird cage, but if you want to claim a deduction for clothing you'll have to meet the guidelines.

 

[joety]

Regarding clothes, there is alot of case law on this, and some of it is pretty odd. An example is that a person who is in the lower or middle class who works in a position where they need particularly expensive clothes (think a sales job in an upscale department store), they can deduct those expensive clothes since they would not be used in the normal course of that person's life.

I question whether that case would hold up on appeal. Do you know how far up the chain it went? There are plenty of other cases out there and the general consensus is that it's not a matter of "would", it's a matter of "could". One case in particular concerned a woman who either directed or performed in a symphony orchestra. She had to purchase an expensive evening type dress that she claimed she had no other use for. She was denied. In my Masters in Taxation program, I wrote a paper on this topic, but that was 16 years ago and there might be new guidance.

 

[joety]

Deduct this year. Deduct next year. If you have no income at that point throw in the towel and forget about it.

Most likely talking amounts of money so small that it is not worth your time or the IRS time to think about it.

You don't really need to have separate bank accounts or fed id #'s, you just need to have records that reflect the transactions in a clear manner for audit purposes. When I used to do tax returns in an accounting firm we had many clients come in with the shoebox filled with receipts and pieces of paper noting transactions. We did what was known as a write-up, which converted that mess into a usable format for figuring the P&L. There is no reason that I know of that if you were audited you could not just push that shoebox over to the IRS agent and say have at it. Many sole proprietors file schedule C on the tax return using social security number. Forget LLC's and corporations as the cost of set up and maintenance would kill any deductions you might have in a small venture.

Maybe Bernie Madoff's CPA would be available for a consultation on this subject. LOL

The difference between the adequacy of "shoe box" write up work to support the books and records of a business and whether a proprietor operates separate bank accounts, letterhead, business cards, etc. is that in this case you are trying to prove you are not in a hobby. If the type of business involved is obviously not one that looks like a hobby or it makes money 2 out of 5 years, the other window dressing is not necessary. If it's borderline, the substance created by what the earlier poster suggested is worthwhile. Caselaw supports this.

 

[Matdik]

I would have to assume that you'd be qualifying this as a miscellaneous deduction? In which case the limit is $2,000 I believe.

As a CPA, I would love to know what Reg this came from... New to me...

As far as a legitamite business.... I agree you would have the burden of proof on this one... Good luck... You normally have three years to turn a profit before the IRS starts to question whether its a legit business or not. Otherwise.... You have a have a hobby.. and hobby expenses are deductible only to the amount of hobby income...


Best of luck.. remember.. Hogs get slaughtered and pigs get fed...

Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.

 

[Parker36]

I wrote off my skis when I was teaching lessons. I say at least try to make it happen