Ask the taxgirl: Eating Your Words (Food Bloggers and Deductions)

Taxpayer asks:

Can food bloggers write off ALL or part of their ingredients from the recipes they post on their food blog? And/or, can they write off ingredients from paid campaigns where advertisers paid them to create a recipe?

Taxgirl says:

I’m actually going to answer this question by saying that I’m not going to answer the second part… yet. That’s a different question – and I’m going to address that in my upcoming “paid reviews” post.

The first question is a bit easier and can be extended to all areas of business, including other areas of blogging.

For an expense related to your business to be deductible, it needs to be both “ordinary” and “necessary”. No matter what the industry, that is the standard that the IRS will use. So, any time that you question whether something is deductible, as a first step, ask yourself is this “ordinary” and “necessary”?

    An ordinary expense is one that is common and accepted in your industry. It’s the one time that you care about what your competitors are doing. No matter what your mother says, it does matter whether everyone else is doing it, too.

    A necessary expense is one that is helpful and appropriate for your trade or business. You don’t have to prove that you couldn’t be in business without the expense – more or less, it needs to make good business sense.

Again, for an expense to be deductible, it needs to be both.

Deductible expenses also need to be distinguished from the cost of goods sold; capital expenses; and personal expenses. The cost of goods sold generally includes items like inventory for resale or the cost of raw materials to make goods for sale. Capital expenses encompasses money used for start up costs or improving your business (and must be amortized rather than deducted). Personal expenses are exactly what they sound like: expenses for personal or family use; expenses used for personal and for business purposes must be divided appropriately for purposes of expenses.

So, with all of this info, take a peek at your expenses and start thinking:

1, Is it “ordinary” and “necessary”? If no, not deductible. If yes, then move on:

2, Is it related to the cost of goods sold? If yes, then it’s more properly deducted in the cost of goods sold. If no, or if you haven’t included it in the cost of goods sold, then move on:

3, Is it related to capital? If yes, then you may need to amortize. If no, then move on:

4, Is the expense for an item for your personal or family use? If no, then IT’S DEDUCTIBLE! If yes, then you have a second part of the question: Can the personal use be separated from business use? If so, then you can deduct the part attributable to business use as a business expense. If no, then no part of it is deductible.

    Some examples:

    Home office costs. Yes, deductible, since you can separate your living space from your business space. If you cannot clearly distinguish the two, there’s no deduction. This is why the IRS will require pictures of your space – and maybe even a home visit – on audit. More on home office costs in an upcoming post…

    Automobile costs. Yes, deductible for the business portion to the extent that you keep good records showing how you used your car.

    Clothing/uniform costs. Deductible only if the only purpose of the clothing/uniform is clearly for business purposes (think branded uniforms). It’s not deductible if you could wear the clothes outside of your workplace – even if you personally wouldn’t. A great example here is a suit. I hate suits: you will never, ever see me in a suit outside of court or client appointments. But it is not deductible because it is not unlikely that a suit would be worn outside of the workplace. But a chicken hat from a fast food restaurant? Not likely to be worn outside of the workplace. More on clothing deductions in an upcoming post… But you get the picture.

And here’s where I think your question falls: yes, it’s ordinary and necessary to buy ingredients for the purpose of making food to review. No, it’s not related to the cost of goods sold. No, it’s not related to capital. But is it for personal use? This is what you’re going to have to sort out in order to figure your deduction.

Food that you eat at home is generally not deductible as a business expense. You have to have food to live, which makes it a personal expense. But to the extent that the food that you’re making and trying is for business use, it would be deductible, so long as you can distinguish the personal and business pieces. This means that it will depend on the individual facts and circumstances involved. Here are some examples:

  • Your blog is a baking blog and you make a full course meal, soup to nuts. Is it deductible? Perhaps the cost of the sourdough bread is … but not the rest of the meal.
  • Your blog is a baking blog and you make three loaves of sourdough bread. Is is deductible? Probably the cost of one loaf – that’s the part you needed for your review, right? But not three. The other two are likely to be eaten for personal use and are not deductible.
  • Your blog is a general food blog and you make a lasagne for your entire family. Is it deductible? Maybe. If your blog is a “family food blog”, then perhaps the family-sized portion is deductible. If your blog focuses solely on a niche, like healthy eating or cooking with noodles, then only the portion attributable to you, for the purposes of testing, is deductible.

So, separate, separate, separate.

The same general rules apply to restaurant reviews. To the extent that you order dishes solely for review, then it should be deductible (but only to you, not to your companions) but add-ons like wine and bread may not be.

A couple more caveats: It’s important to remember the hobby loss rules. If you’re blogging as a business, you may have deductions in a year that exceed your blogging-related income; you don’t want to make this a habit or IRS will believe that your blog is a hobby, not a business. If you’re blogging for a hobby, then your deductions may not exceed your blogging-related income.

Also keep in mind that this area is very dependent on fact and circumstances. You need to consider your own situation carefully and not attempt to make something fit that doesn’t. Don’t be greedy: think through your potential deductions carefully and honestly. Remember: pigs get fat, hogs get slaughtered.

You’ll need to retain excellent records with annotations about the expenses. Don’t expect the IRS to allow you to write off your grocery list. Keep your personal expenses distinct from your business expenses. Shop separately for your blog, where possible, and try to buy specifically for your business purpose: don’t buy a dozen eggs, use one and try to write off the other eleven. Keep a good database of which items you used for which recipe (and, if you’re freelancing, for which publication or blog). If you can, it’s best to write directly on the receipt what it was for and how you used it: “lemon curd for holiday meal piece, Gourmet magazine, 12-24-09.”

I’ll be honest and say that I haven’t seen a lot of case law in this area. Blogging and internet-related activities are relatively new to the tax scene, so I’m not sure how the IRS is going to treat some of these specific areas. But the law is the law and the rules about “ordinary” and “necessary”, as well as distinctions between personal and business use, haven’t changed. Don’t get caught up in the “internet-edness” of it all: just follow the rules. That said, if your situation is particularly tricky, you should definitely consult with a tax pro (it’s deductible!) before making any significant tax-related decisions.

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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