Is the Liquor Store a Tax Deduction?

Why are you going to the liquor store? – A real-life look at business tax deductions

One day, my staff bookkeeper asked me, with a stack of receipts in hand, “Why are they buying booze?” My first thought was, because they are self-employed, and life is tough…  Then I realized what he was asking if it was a real tax deduction, and that’s a very good question.

Part of what I do is figure out what people spend their money on and why. I decide whether a receipt is a tax-deductible business expense or not. Sometimes people wonder how I can get into their mind, into their spending decisions, and ‘just know’ what they are doing. I’m not really telepathic. Part of it is because I’ve been doing this for many years and make good, educated guesses. Other times, I ask the client. Asking about people’s alcohol habits can get pretty personal. Knowing what to ask, and how to ask it, is important.

So, why ARE you buying booze? Can it be a tax deduction?

Here are a variety of reasons why my real-life clients go to the liquor store for tax-deductible business purposes:

1. They own a bar that operates under the Arkansas private club rules. Once I know that, I also know that they can’t buy liquor wholesale, or have it delivered. I know they probably have a regular company and a separate non-profit private club to file taxes. I also know that they report sales tax in a convoluted manner devised by the state (and probably need help with that).
2. They are a food manufacturer / caterer/ chef that uses liquor as an ingredient in their food. When I know this, I also know that they should have a method in place to separate their supply purchases from their food purchases so the are paying the correct sales tax. I also can help them estimate their margin, so they are charging enough to keep their doors open.
3. They are a provider of a high-end service like investing/ insurance / marketing and buy nice bottles of liquor as client gifts. When I know this, I will check to see if they are keeping a gift log, which is required in some industries, and not buying extravagant gifts for employees (which could be deemed wages and taxed) or family (which could be denied as a tax deduction.)
4. They provide a service as a ‘gig economy’ professional and meet in public places often. Many people have tossed the office overhead and conduct business in coffee shops and restaurants. It is not uncommon to close a deal over drinks. Once I know this, I’ll be sure to explain the rules for deducting food and beverages and the required record keeping.
5. Here’s one for the ‘craziest tax situations ever’: Client has multiple pieces of equipment that use gasoline. Every day, someone loads the equipment and all the gas cans on the trailer, drives it to the gas station, fills it all, and brings it back. He got tired of someone doing it in the morning, on the clock, disappearing for over an hour, and keeping everyone from starting work until after 10. His solution: Anyone can volunteer to do it after work, off the clock, and the volunteer can spend a few dollars at the gas station to buy themselves something. I had receipts for cigarettes, six-packs, tobacco dip, you name it. Did it look like tax-deductible purchases? No. But once I found out that it was minimal compensation for the person who volunteered to fuel the equipment, it made sense as a business expense and a tax deduction.

Of course, it just might be that life is hard

They may just be buying booze for the weekend. Often, business owners use their business debit card for personal expenses instead of moving the money to their personal account first. Some people do it every day, some only once a year or less. It happens. Separating the owner’s personal expenses from the business expenses is something that takes good judgement and the right questions. It’s not only the liquor store. It’s the big-box store , the car parts store, and the drug store. It’s me knowing what (and how) to ask to find you every business deduction allowed. Even the liquor store