What is alcohol's role in the modern business world? Is alcohol able to be included in business expenses?
The relationship with alcohol, historically, is complicated. Alcohol as a beverage has been around for ages, with some of the earliest documentation dating back to 7000 BCE. That means that humans have been consuming alcohol for over 9,000 years! Now, the relationship between alcohol and societies has seen its ups and downs. Some could argue that a lot of greatness came from the convergence around alcohol, like the building of nations and the works of Ernest Hemingway and Edgar Allan Poe. While others could argue to the destruction it can cause, like the tens of thousands of deaths every year that are due to alcohol related incidents.
This article walks through the tricky relationship between alcohol and reimbursable business expenses.
Alcohol and Business Expenses
Alcohol is in business. Now, by no means should alcohol consumption be pressured upon anyone, but it’s something that is very commonplace in society. A 9,000 year old habit won’t die easily.
Is Alcohol a Reimbursable Expense?
The short answer is yes, alcohol is a reimbursable business expense, per the IRS. According to Publication 463 by the IRS, a business-related meal expense “include(s) amounts spent for food, beverages, taxes, and related tips.”
The longer answer: The terminology used by the IRS on this topic is actually quite vague, and leaves a lot to the individual auditor’s opinion in terms of alcohol expenses that keep your business expenses compliant. Never in the publication does the IRS state a specific quantity or dollar amount as “the line.” So, it’s hard to say exactly what is ordinary and necessary versus lavish and extravagant when it comes to expensing alcoholic beverages.
When discussing this topic with Tallie's CEO, Chris Farrell, we both agreed that taking Richard Branson for a business meal and expensing a $500 bottle of wine for the three of us would probably get the “OK” from the IRS. But, doing the same for an average client would likely not pass. This would suggest the qualification of “ordinary and necessary” is largely scenario-based.
Now consider taking a client to dinner and drinks, then expensing $100. The IRS probably won’t bat an eye. But, if you spend $500 on that same client, the expense might not pass. In this case, the qualification of “ordinary and necessary” is dollar based.
But, what if you buy multiple drinks for $50 or, in the same scenario, buy a single bottle of wine for $100. In this situation, the pass/fail will probably fall on the quantity of alcohol.
Confusing, right?
Now picture your own scenario. Are your alcoholic expenses judged on scenario, price, or quantity? Not only are the guidelines nondescript, but now there are three separate “options” for which your expense on alcohol can be deemed lavish or ordinary.
Expensing alcohol is an extremely tricky process and there’s no black and white cut-out for you to reference. So when drinking alcohol on a business work trip or client dinner, remember this: when in doubt, don’t expense it or speak with your finance team.
Have you experienced a situation that involved expensing alcohol? Leave your questions and stories in the comments below!