For many of us, one of the most pleasant parts of our workday is our cup of coffee. If you’re a freelancer or independent contractor, you can write your coffee off with tax deductions. There are some additional perks in 2021 and 2022. The government is trying to help restaurants and cafes build themselves back up after being closed for a long time due to COVID restrictions. There are quite a few ways you can write-off caffeine costs.
Claiming coffee as a business expense
The deduction is usually 50% of the cost. Thanks to the Consolidated Appropriations Act of 2021, business meals at a restaurant that were once 50% deductible have been increased to 100% for the years 2021 and 2022. This is largely due to the COVID response measure in an effort to help businesses in the restaurant industry. This includes coffee.
Recordkeeping for your coffee deduction
Maintain accurate records to substantiate your expenses and claim meal and entertainment deductions and coffee on your business tax return. Keeping detailed records will help you avoid any issues with the IRS in case of an audit.
Recordkeeping tips for meal and entertainment
Recordkeeping is crucial to counting your coffee expenses as meal and entertainment deductions. Here are some tips for recordkeeping related to your coffee expenses as meal and entertainment deductions.
Use a separate business account
Keep your business expenses separate from personal expenses using a dedicated business account or credit card. Having a different business account makes tracking and identifying meal and entertainment expenses related to your business easier.
Save all receipts related to business coffee expenses as your meal and entertainment deduction. Receipts should include the date, amount, and location of the payment. For meals and coffee, retain itemized receipts rather than just credit card slips. Although it is not required to keep receipts for business meals and coffee for deductions under $75, they contain all the information you may need.
Maintain a log or expense report
Create a log or expense report that includes all relevant information about your meal and entertainment expenses. The log can be a physical logbook, a spreadsheet, or an expense tracking app. Update the record regularly to ensure all costs are captured.
Here’s a sample table to help you log and record your meal and entertainment expenses:
|Date||Location||Amount||Attendees||Business Relationship||Business Purpose||Deductible amount|
|3/1/2023||Joe’s Café||$50||John Doe, Jane Smith||Prospective Client||Client meeting||$25|
This table includes the following columns:
- Date: The date of the meal or entertainment event (deductible coffee)
- Location: The name or address of the location where the event took place
- Amount: The total amount spent on the meal or entertainment event
- Attendees: The names of the individuals who attended the event
- Business Relationship: The business relationship of each attendee (e.g., client, employee, a prospective client)
- Business Purpose: The reason for the meal or entertainment event (e.g., client meeting, team building, networking)
- Deductible Amount: The amount eligible for a deduction, typically 50% of the total expense (check the latest IRS regulations for specific rules and exceptions)
You can create a similar table using spreadsheet software like Microsoft Excel, Google Sheets, or Apple Numbers, making tracking and managing your meal and entertainment expenses easy.
Know the deduction limits
As of September 2021, the IRS generally allows a 50% deduction for business-related meal and entertainment expenses. However, there are some exceptions. For example, the deduction limit for meals an employer provides to employees for the employer’s convenience is 50%, but this rate may change. Always check the latest IRS regulations for the most up-to-date information.
Keep all records and documentation related to meal and entertainment deductions and coffee expenses for at least seven years. The IRS can audit your tax returns anytime up to six years back, and some states may have more extended audit periods.
When Can You Deduct Coffee?
The common ways to deduct coffee include coffee with a client. When you’re discussing business with a client at a coffee shop, you can deduct the cost of the coffee for you and your client. They can even be a prospective client. You can deduct coffee you purchased for a staff meeting as well. If you have a business meeting, you can deduct any coffee and accompanying baked goods. You can also deduct the coffee you buy for the office.
If you’re traveling out of office and you purchase coffee every day, this is considered a travel expense and will be eligible as a tax write-off. Maybe you want to offer coffee as a gift. Whether it’s beans, a gift card, or a cup of coffee, this can be written off. The IRS allows you to claim up to $25 per person when it comes to gift giving.
If you are truly a fan of coffee and want to provide it for a local charity, this can be written off. Maybe you’re giving away a half pound of gourmet coffee with your company logo on it. This is considered a marketing expense.
If you’re hosting a party for staff, you can write coffee off as well.
There are plenty of ways you can write off coffee expenses. Make sure to keep track of write-offs. You may want to use an app. There are plenty of apps out there that let you keep track of all receipts. All the mentioned deductions above are currently 100% deductible.
When You Can’t Deduct Coffee
The IRS says that coffee can only be deducted if it’s for clients and staff. If you’re working in a coffee shop, you can’t write off the coffee you purchased for the luxury of getting some work done in a cozy chair. As you’re not meeting with a team, this is considered a personal expense.
You won’t be able to deduct coffee expenses when you’re hanging out with friends and family either. Even if you happen to be talking about business. If you’re working from home, you don’t get to deduct your at home office coffee. However, if your home office is set up so clients are able to come over, you can deduct your coffee expenses.
Even though drivers are working, they are not allowed to deduct the coffee they purchase while they’re on the job.
The coffee tax write off has improved so that any deductible you’re eligible for will be 100%. For the most part, if you’re legitimately getting work done and you have a coffee by your side, you can write it off. If you’re buying for employees and clients, it’s always a write off. Make sure to spend the time to input the receipt so you don’t forget about the deductions you’re eligible for.