Can You Write Off Alcohol as a Business Expense?

You just wrapped up a client dinner at a nice restaurant. The conversation went well, you ordered a bottle of wine, and now you're staring at a $200 bill. Can you write off alcohol as a business expense?

The short answer is yes, but the IRS has rules about how much you can deduct and when it counts. Here's everything small business owners need to know about making alcohol expenses tax deductible.

How Meals and Entertainment Tax Deductions Work

Business meals are deductible at 50%. This includes the food, drinks, tax, and tip.

So, if that $200 dinner bill includes a $40 bottle of wine, you can deduct $100 total, which is half of the entire meal cost.

Alcohol doesn't get separated out on your tax return.

The IRS treats it as part of your meal expense, which means you follow the same 50% deduction rule that applies to the steak, salad, and coffee. There's no special alcohol category or additional limitation beyond the standard meal deduction.

However, to write alcoholic beverages off on your tax bill, you need a legitimate business purpose.

This means meeting with a client, discussing a project with a contractor, or having a working lunch with an employee. You can't write off drinks with friends, even if the conversation involved work in some capacity.

Since the 2018 Tax Cuts and Jobs Act, you also can't deduct entertainment expenses anymore. For example, taking a client to a baseball game is not deductible. However, the meal and drinks before the game are 50% deductible as long as the costs are separated on the receipt.

Learn more about small business taxes and how they work.

When Can You Write Off Alcohol as a Business Expense?

The tax code uses the term "ordinary and necessary" to determine if your expenses qualify for deduction.

Ordinary means common in your industry, and necessary means helpful and appropriate for your business. For example, a dinner meeting with a potential client qualifies, but personal expenses like drinks at your buddy's birthday party don't.

In other words, your alcohol expense needs to happen during a legitimate business activity.

Here are the situations that qualify:

• Client meetings over lunch or dinner: You're discussing a project, pitching services, or maintaining a business relationship.

• Business meals with employees: But the conversation needs to focus on work matters, not just casual team bonding.

• Travel meals when away on business: If you're traveling for work and have a meal with drinks, it counts.

• Conference or networking event meals: Meals during conferences where you're discussing business with attendees or potential clients.

• Office parties and company-wide events: These follow different rules with a 100% deduction for food and drinks that benefit all employees.

Let's say you're a graphic designer meeting a potential client at a restaurant. You discuss their website redesign, review their brand guidelines, and order a bottle of wine with dinner.

The total bill is $160. You can deduct $80 (50% of the meal). You'd write something like "Meeting with [client name] re: website project" in your records along with the receipt.

When Alcohol Expenses Don't Qualify

The IRS looks for clear business purposes and reasonable spending when it comes to all tax deductions, but especially situations when you want to deduct alcohol.

Here are a few scenarios that don't qualify:

• Pure entertainment without business discussion: Buying rounds at a bar with colleagues after work or taking clients to a sports game.

• Lavish or extravagant expenses: A $500 bottle of champagne at dinner raises red flags, even if the business discussion was legitimate.

• Personal drinks that aren't business-related: Wine you pick up at the grocery store for yourself, even if you work from home.

• Alcohol purchased for home office consumption: Keeping a bottle of whiskey in your desk drawer for afternoon sips doesn't count.

• Gifts of alcohol: If you give a client a bottle of wine as a gift, it falls under gift rules (limited to $25 per person per year).

For example, you own a consulting business and take your team out for happy hour drinks. Everyone orders cocktails, you chat about life, and work comes up briefly.

This doesn't qualify because the primary purpose was socializing, not conducting business. Even though you're with coworkers, the IRS needs to see a clear business agenda.

Learn more about the tax loopholes for small business owners that may qualify for deductions, though.

Documentation Requirements

The IRS wants proof that your business meal truly involved business. To prove this:

• Keep the itemized receipt that shows what you ordered and how much you paid.

• Write down who attended the meal and their relationship to your business, such as client, potential customer, employee, or contractor.

• Note the business purpose in your records: "Discussed Q4 marketing strategy" or "Negotiated contract terms for website project."

You don't need a transcript of the entire conversation, but you should document the general topic. A quick note on the receipt or in your accounting software is fine.

For example, something like "Met with Sarah Johnson (prospect) to discuss bookkeeping services for her consulting firm" gives the IRS everything they need.

If you struggle with records for your business, it might be the time to hire a bookkeeper.

So, Is Alcohol a Deductible Business Expense?

Yes, alcohol is deductible when it's part of a legitimate business meal.

You'll write off 50% of the total cost, including the drinks, as long as you have a clear business purpose and proper documentation.

The rules aren't particularly complicated, but they do require you to separate actual business activities from personal spending.

That said, questions like "What counts as 'ordinary and necessary' in your industry?" and "When does a networking conversation cross the line into a deductible business meal?" don't always have straightforward answers, and tax law changes regularly.

Many small business owners benefit from working with a tax professional who can review your situation and make sure you're taking deductions you qualify for without raising red flags.

If you want to discuss tax deductions and other strategies that'll help you keep more money, learn more about our tax services or book a consultation with our team!