Taxpayer asks:
Thanks for taking the time to consider my question.
I travel extensively for my job. When I travel, I have an expense account for meals and hotels. My company recently moved to a “no alcohol” policy on expense accounts. We cannot put any alcohol on our expense accounts and we cannot apply for reimbursement for any alcoholic beverages.
My question is, if I have an occasional glass of wine for dinner, can I deduct that on my taxes as travel costs?
Taxgirl says:
I say yes, assuming that you otherwise meet the criteria for deducting your meals.
To the extent that your employer provides reimbursement for your meals, the reimbursement is not taxable to you (or deductible).
For meal and entertainment expenses that are not reimbursed by your employer, your deduction is limited to 50% of the expenses. They would be treated as unreimbursed job expenses and reported on Schedule A as a miscellaneous deduction. This means, of course, that they are subject to the dreaded 2% floor – in other words, you can only deduct those that exceed 2% of your AGI.
You can use the per diem method or the actual cost method when calculating the deduction. In your case, it makes sense to use the actual cost method since you are otherwise being reimbursed (or taking advantage of your expense account).
The normal rules of travel (business versus pleasure, etc.) still apply.
The key to your question, really, is whether your meals – and that additional glass of wine – are considered “lavish or extravagant.” The IRS will not allow a deduction for “lavish or extravagant” expenses. An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances.
So use common sense. I think it’s reasonable to have a nice glass of wine at dinner. But I’m thinking a nice Sancerre or Shiraz – not a 1998 Petrus Pomerol. Similarly, I think you can justify a glass or two but not the cost of all-night vodka shots. But really, it’s up to the discretion of the IRS as to what’s “reasonable” under the circumstances.
It’s worth noting that the IRS does not have an official position on alcohol beverages, nor a definitive amount for what’s considered “reasonable” (though the per diem amounts can be used as a guideline). What’s reasonable for one person may not be reasonable for another – just ask Hugh Heffner, who argued that very thing with the IRS.
Keep excellent receipts, use good judgment – that’s the best advice that I can offer.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
Great question. I just wrote an article about bars, so I was allowed to add alcoholic beverages to my expense account (would have been tough to write the piece otherwise!)
You know it might be better to use the per diem, less the amount reimbured, one will have to have all the documents for records anyway. It might be worth the time and effort to figure it out. Per diem in some cities is very high.
I have done some work for an organization that has a no alcohol policy for expense reports. I’m not sure if this is a moral judgment or what. Personally I’d prefer a no dessert policy and allow a glass of wine.
Mary Kay,
My gut is that it’s more of a liability policy than a moral one – most companies don’t want to be on the hook for an employee’s behavior while drinking. But that’s just the cynical lawyer in me. 😉
BTW – I’m with you on the “no dessert” but yes to the glass of wine policy! 😉
I agree with Kelly — also, I think that a lot of “no alcohol” T & E policies are based on cost cutting since alcohol (theoretically) is not necessary for subsistance.
I’m with Kelly on this one, that it’s probably about liability. 20 years back I worked for a company who went to a strict no alcohol, no holiday parties, no nothing, ever, at anything related to work, after an employee was killed wandering across the highway after dark, he’d wandered wasted out of the company Christmas party. This isn’t an urban legend, he was someone we all knew. I’m surprised the co. survived the lawsuit.
I worked as manager for a trucking company where the owner would not allow any alcohol bought by sales for any customers because of his religious belief. I know for a fact that this was bought and their expense accounts were covered by something else. This was evidently OK because the owner did not know that alcohol was purchased and OK as long as I approved the expense account. Their expense accounts were accountable plans so they had to have a receipt for all expenses as well as turn in any money not used.