Is Your Coffee a Tax Write-Off?

Claiming coffee as a business expense

Can freelancers, independent contractors, and small business owners claim their coffee as a tax deduction? The short answer, it depends.

Generally speaking, a deductible business expense must be “ordinary and necessary” for it to count as a write-off. Ordinary and necessary simply means it’s a common expense for someone in your field, and it's essential for the operation of your business.

For tax purposes, coffee would generally be categorized as a business meal. And how those rules get applied to business meals has been an ongoing discussion for the IRS.

Deductions related to food and drink are one of the more widely abused write-off categories, so normally the deduction is limited to 50% anyway. But luckily, as part of the Consolidated Appropriations Act of 2021, restaurant meals that were normally only 50% deductible were increased to 100% for 2021 and 2022. (This was a COVID response measure to generate more business for the restaurant industry.)

That means more money back in your pocket when you take clients and coworkers out for a latte!

When coffee is deductible

Whether your coffee is deductible really depends on individual circumstances. Let’s look at the most common examples of when coffee is a generally acceptable write-off.

✓ Coffee with a client

• 100% deductible in 2021 and 2022
• 50% deductible normally
  

If you meet with a client over a cuppa joe at Starbucks, the cost is an eligible business expense. This is true even if you’re just prospecting the client and they don’t end up becoming business for you later on. 

✓ Coffee for a staff meeting

• 100% deductible in 2021 and 2022
• 50% deductible normally
  

Say you run a small business with a team of employees. You and your team have a business meeting to plan out the next quarter or to discuss a new marketing platform. The coffee and donuts you buy are deductible!

✓ Coffee for the office

• 100% deductible in 2021 and 2022
• 50% deductible normally
  

If you have a coffee maker that’s available to your staff or to customers, the coffee that you purchase for it is a legitimate business expense.

✓ Coffee while traveling for work

• 100% deductible in 2021 and 2022
• 50% deductible normally
  

Let’s say you take a business trip to Miami for a conference. You purchase a cup of coffee each morning you’re there. Those purchases count as travel expenses and are eligible tax write-offs. 

✓ Coffee as a gift

• Always 100% deductible
  

You don’t always have to drink or even brew your coffee to have it count as a write-off. With the holidays right around the corner, you might consider sending your clients a seasonal gift. The IRS allows you to claim up to $25 per person as a write-off, and a gourmet bag of coffee would fit the bill! 

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✓ Promotional coffee

• Always 100% deductible
  

If you provide coffee at a local charity run that highlights your company name or logo,  the cost would qualify as a marketing expense. If you have custom coffee mugs with your brand, that would be eligible as well.

✓ Party perk coffee

• Always 100% deductible
  

All expenses related to hosting a party for your staff is fully deductible, so spring for the coffee bar! Or better yet, make it an Irish coffee bar.            

As you can see, the world of deductible coffee expenses is as wide as it is fragrant. To keep track of these delicious write-offs, you can use Keeper. Our app automatically scans your purchases for business expenses, whether you’re buying from Starbucks or the local diner. 

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When coffee is not deductible

While it’s my personal belief that coffee expenses should always be deductible, the IRS disagrees. As a general rule, coffee is only deductible if it’s available to your clients or your staff. 

Let’s take a look at some situations where it’s specifically prohibited.

✘ Courtesy coffee

Courtesy coffee (a term I proudly just coined) is the coffee you buy at a coffee shop to avoid getting the stink-eye from the owner for using their internet. You might be working, but you aren’t meeting with clients or your team, so the IRS considers this a personal expense.  

✘ Coffee with friends or family

This should be obvious, but the coffee you purchase on personal time does not count. Even if you spend that time discussing your business. 

✘ Home office coffee

Why is coffee deductible in a typical office setting? Because it’s available to the staff and clients. If you’re the only person in your office, and you don’t use your office to meet with clients, it’s not a deductible expense.

Now, if your home office is set up to meet with clients, coffee becomes a fair game. The IRS doesn't care how often you actually meet with them, as long as the coffee is available to them. (This situation is pretty unusual, though — most people with home offices still tend to take their meetings somewhere else!)

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✘ Functional coffee

Second only to doctors and nurses, drivers have the most need to be alert on the job! Unfortunately, the coffee purchased by rideshare drivers and truckers between late-night rides (or on long commutes) doesn’t count.

If you’re feeling disgruntled after that, join the club! I’m right there with you. But until things change, all we can do is pour another cup of non-deductible joe and keep on trucking!