Donna Peeples writes:
I have seen a lot of articles in the paper about taxing sodas and foods that are bad for you. I say, “Why not?”
I used to be a smoker. At one point, I was up to two packs a day. When New Jersey raised their cigarette tax, I stopped because my cigarettes were almost twice as expensive as when I had started smoking. I couldn’t afford it anymore. You know what? It was the right choice. I am healthier today because I stopped smoking. And I might not have done it if cigarettes were the same price as before.
I think this idea of taxing unhealthy behavior is a smart one. I think we should tax things that make us sick: cigarettes, alcohol, fatty foods and sugary foods. I know that people don’t like the idea of the government telling them that they shouldn’t do things like eat foods that are bad for you but all of these things are adding to our health care problem. I don’t think it’s fair that I should have to pay for health care for people who didn’t stop smoking or who eat too much. And I have read that most of the cost of health care in the US is to pay for diseases and sicknesses that could have been prevented with a better lifestyle.
I’m not saying that you shouldn’t be able to buy cigarettes, beer and candy but I do think if you do continue to buy those things, you should pay more. Maybe some people will stop because of the cost. And those that don’t will pay for their own health care. If this happens, maybe we won’t have to raise income taxes to pay for health care.
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 which 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 – is 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.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Nevada legislators got an earful (and an eyeful) on Tuesday during a hearing about whether to tax prostitutes. The tax would be $5 per sex act and would raise more than $2 million per year for the state (I did the math on that one for you, it’s 400,000). Nevada has not collected any direct taxes from the industry since prostitution was made legal more than 30 years ago, though local governments have benefited through fees to the individual brothels.
Sen. Bob Coffin, who chairs the Senate Taxation Committee proposed the tax to help Nevada climb out of its current economic situation. Four of seven committee members oppose the measure. But Coffin got some surprising support at the hearing: prostitutes and brothel owners. Deanne “Air Force Amy” Salinger spoke in favor of the bill, saying “If $5 per person can raise $2 million a year, I’m all for it.”
In response to his critics who have labeled the tax as “blood money” derived from “paid rape,” Coffin said, “Can we be so proud as to refuse money that is offered, that can be levied on a legal business?” Seizing on the legitimacy issue, Dennis Hof, owner of the Moonlite Bunny Ranch agreed, saying that brothels were “looking for respectability and acceptability.”
However, Sister Diane Maguire of the Sisters of the Holy Family in Las Vegas disagreed, noting that the bill “normalizes prostitution and makes it seem like it’s a legitimate occupation.”
Yep, a hearing full of nuns and hookers. There’s a joke in there somewhere.
Despite the flurry of interest in the bill, largely driven by the relative “celebrity” of many of the prostitutes who have recently appeared on a number of HBO productions, it’s likely to go nowhere. Politicians don’t want to be seen as supportive of prostitution in the state, which, while legal, is still considered immoral… like, oh say, cigarettes and alcohol, both of which are legal and taxed?
I’ve posted before about sin taxes – this notion of using tax as a means of controlling or modifying behavior.
In the UK, the Chancellor delivered the new budget this week. The budget included little in the way of new or increased taxes since the UK is in the throes of many of the same financial woes that the US is experiencing. However, the few new taxes that were introduced are noteworthy: they are pure sin taxes.
The tax increases that are getting the most press currently are boosts in the prices of alcohol. The new budget calls for a 4p addition in tax for beer; 3p addition in tax for cider; 14p addition in tax for a liter of wine and a remarkable 55p for hard liquor. The rise in tax prices was contemplated as a deterrent against binge drinking. The question is whether that makes a difference in behavior.
I’m not a binge drinker so I will say that I don’t understand the mentality. That told, I can’t imagine that an increase of 3p per beer, which works out to approximate 5¢ per drink, would sufficiently serve as a deterrent to binge drinking. Would a nickel really cure an addiction?
So let’s call a spade a spade: the increases in tax on alcoholic drinks aren’t really meant to serve as a deterrent. They are a revenue raiser – and a revenue raiser that few taxpayers would challenge.
In fact, sin taxes rarely attract attention. That’s the beauty of sin taxes. The behavior that they are meant to contain or modify is generally of a nature that is morally or ethically frowned upon. Realistically, the Budget Office understands that there will not be a huge public outcry against increasing the tax on drink. They would expect a different response to an increase in, say, sales tax.
So maybe sin taxes do work – but not in the way that you expect.
