Coffee and donuts are somewhat common workplace perks. But for small business owners, those simple daily indulgences can also add up to a significant tax deduction.
American workers spend on average about $1,000 a year on coffee, a new survey finds, according to Reuters. But if you're picking up the tab to keep your workers content, your coffee costs could be much higher.
This may just be the caffeine talking, but three overarching questions come to mind when considering small business tax deductions for coffee and donuts:
1. Is it a business expense?
Small business owners are generally entitled to deduct the costs of refreshments and similar fringe benefits for their employees, one tax attorney advised in the San Francisco Chronicle.
"To qualify, the expenses must be small and furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency" of workers, the tax lawyer wrote.
The key test: Are your coffee and donut expenses "ordinary and necessary" for carrying on your business? Lots of legal challenges hinge on this question, so it may be best to consult a local tax attorney before trying to come up with your own justification.
2. Is it fully deductible?
Many small business expenses are subject to a 50% deduction limitation, but the tax code provides exceptions that may cover coffee and donuts, one tax accountant explains for Inside Tucson Business. In general, small businesses can deduct 100% of the following costs:
- Providing an office coffee bar. Employer-provided coffee, donuts, snacks, and soft drinks that are consumed at work are generally fully deductible.
- Refreshments at employee functions. Coffee and donuts offered at work-related parties and meetings for the benefit of employees can be fully deductible.
- Refreshments provided to the public. This can include coffee and donuts offered to customers in your lobby.
3. Are receipts sufficient to prove business expenses?
Receipts are required, but they may not suffice to establish a valid business purpose, the Tucson tax accountant warns. Again, check with a tax attorney to see what else you may need to deduct coffee and donuts from your small business taxes.
- Deducting Business Expenses (Internal Revenue Service)
- The Small Business Tax Deduction: What You Should Know (FindLaw)
- Browse Tax Lawyers by Location (FindLaw)
- 2011 1099 Forms, Plus New Form 1099-K, Due This Month (FindLaw's Free Enterprise)