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My Scheme to Never Pay Full Price for Eating Out Again

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never pay full price for eating out againHey everyone, I got a great idea! What if I start a food channel on YouTube and run it under the Retire by 40 brand? That way I can write off restaurant meals and never have to pay full price for eating out again. Wouldn’t that be awesome? First off, I’m not a tax accountant. I’m not sure if the IRS will look kindly on this business expansion. Fortunately, we’ll get some feedback from my friend, Eric J. Nisall. He’s a real tax accountant and he’ll let us know if the IRS will bring the hammer down or not. Let me go through my idea first and then Eric will give us his opinion at the end of the post.

Tax deduction for blogging

Blogging has some advantages. I could write off business expenses such as a trip to attend FinCon, a business laptop, hosting expenses, our new logo, and occasional business meals. This is only possible because blogging is a business for me. Retire by 40 generate revenue through advertising and we pay tax every year. If this blog doesn’t make money, then it’s just a hobby. The IRS won’t let you take tax deductions if there is no income. That’s the first major hurdle and we’re over it.

Eating out

In particular, I could deduct eating out if I meet someone to talk about business. For example, I met up with a CA blogger for lunch last week. We talked about how to increase readership and various affiliate programs. I’ll be able to deduct 50% of the meal from my blog income. Unfortunately, I can’t deduct every restaurant meal because I don’t meet business associates every time I go out.

However, I could turn eating out into a business. I’m starting a new food channel on YouTube. Eating out will be a business expense because I need to eat out to make new videos. The new food channel will operate under the Retire by 40 brand. The LLC is already making money so the IRS won’t see it as a hobby. It’s just a business expansion. That’s genius! Right?

Next, we need a business plan. Here it is – I’ll make a video every time I eat out and put it on YouTube. We’ll generate good revenue once we have 1M subscribers. That’s my son talking. He thinks it’s easy to gain subscribers. The Tubers he follows have millions of subscribers and they’re super annoying. Anyway, we’ll start generating income from this branch of the Retire by 40 Inc. once we have lots of views. Like any business, an expansion usually doesn’t make money for a while. That’s normal.

Okay, that’s all I’ve got. Eric, it’s your turn. Will the IRS let me slide on this business expansion? Or should I wait until this subdivision makes money before we take a tax deduction on eating out?

Feedback from the expert

Thanks Joe!

Hoo boy, where do I start????

Well, for starters, it’s important to make a distinction that Retire By 40 the blog isn’t the same a “potential” Retire By 40 Food Channel on YouTube. While one is already established and profitable, it does so in a specific niche. The personal finance/financial independence niche is profitable, but food is a separate issue. Money is universal for the most part, but restaurant reviews are highly localized so it may be a leap to assume the success will carry over. It’s like I discuss in my article regarding the truth about starting a business, success in one field doesn’t directly correlate to success in other fields.

In that regard, Joe, you nailed it that you should wait until there is profit being made or at least regular income production before going ham.

That’s just the start, however, there are other things to consider when it comes to putting this plan into action aside from the monetization factor.

Unfortunately, you will find practically nothing regarding this subject from the IRS, and surprisingly, nothing covering the similar food critic profession either. What we must go by are the rules for basic rules for business expenses and some common sense.

Two major rules

There are two major rules for determining the deductibility of business expenses. One must be both ordinary and necessary to be a qualified business expense (https://www.irs.gov/publications/p535#idm140359418626128 under “What Can I Deduct?”):

  1. An ordinary expense is one that is common and accepted in your industry.
  2. A necessary expense is one that is helpful and appropriate for your trade or business.

In addition, you cannot deduct personal, living, or family expenses (https://www.irs.gov/businesses/small-businesses-self-employed/deducting-business-expenses#personal)

Keeping those few things in mind, we have the basis for what follows…

You cannot deduct every single meal, even if you “record a video” about it. Why not? Because of the personal rule I just mentioned. Things that are necessary to live cannot be deducted as business expenses. People who do cooking shows can’t write off all their groceries, only enough to cover one serving of a recipe—consider a baking show: the ingredients for one loaf of bread is ok to write off but not 3 or 4 loaves worth unless they are feeding a guest audience, not family/friends. The same is true for travel bloggers—they cannot write off all their housing costs while on the road because shelter is a necessity, so they can only write off a portion even if they “write about their travels”.

Another thing to consider is who is dining. You can only write off the cost for you, the person reviewing the food. You can’t take the entire family out for dinner and pay for everyone and expect to write off 100% of the entire bill. Again, I refer you to the personal /family expense rule mentioned above. Unless you’re going to employ those other people and pay for them to record their own reviews, they cannot be included in your expensing of the food. Even in that case, they would be one to deduct their share of the meal on their own books. And no, paying for the meal in lieu of paying them for the review isn’t appropriate because it most likely isn’t going to be the same value.

It’s not that easy

A lot of people will tell you things like “well if it’s for a business you can do it!” but most of those people have no business opening their mouths on the subject! I know it sucks to hear, but sometimes you just need to hear the truth and that includes being told: “no, you can’t do that!”. Don’t blame Joe, blame me!

Trust me, I know what I speak of. People have sent me their thanks for clarifying the rules for issuing 1099-MISC forms and deducting clothing and the confusion surrounding Self-Employed Health Insurance Deduction. CPAs have emailed me to thank me for providing information that they didn’t even know about or to ask me to verify that they were applying rules correctly.

The bottom line is that I’m just providing you with guidance. You can take it or leave it, I won’t be offended ?

I’ll put off deducting tax for now

Thank you Eric for your feedback. It sounds like I can’t put a food channel under the Retire by 40 brand. To be safe, I’ll wait until the channel starts making some income first. For now, it’s just a hobby. That’s okay. Blogging was a hobby until it started making money too. Now, it’s a real business.

Starting a blog is a great way to build your brand and generate some extra income. You can see my tutorial – How to Start A Blog and Why You Should. Check it out if you’re thinking about blogging. 

*I’m on vacation in Thailand right now (for almost free!) I’ll be back soon. See how we traveled to Thailand, Vietnam, and Japan for almost nothing. I didn’t even have to mess with taxes. 
Image credit Angelo Michalopoulos
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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 22 comments… add one }
  • German December 4, 2019, 9:15 am

    You will be able to write off professional camera equipment and accessories. Everything else, probably no, because it’s part of your basic necessities. I have a youtube channel and I post many videos about my city. I don’t write off anything because I don’t incur business specific expenses. If I go to an event and film a video, well, I would have come to the event anyway. What you can do is work directly with restaurant owners if they want you to review theri meals and post online. Youtube earnings are very dismal. You will make more money from contracts.

  • GYM December 2, 2019, 10:47 pm

    Thanks for the insight. I don’t know if you remember John Chow.com but he used to talk about food and even had pho meet ups and wrote them off as a business expense. We can meet up too we are on the west coast, come up to Vancouver, I’ll show you around to the good food spots.

  • Tom @ Dividends Diversify December 2, 2019, 5:38 pm

    Thanks for the tax advice, Joe. I would like to have lunch with you to discuss blogging. I will buy so you won’t have to worry about deducting the expense. Too bad we live so far apart 🙁 Tom

  • Jim @ Route To Retire December 2, 2019, 11:46 am

    Good try, Joe – that would be one great path to follow if you could! Eric’s point on “People who do cooking shows can’t write off all their groceries” makes sense.

    Regardless, I’d still be looking forward to checking out your channel and picking up some great tips! 😉

  • freddy smidlap December 2, 2019, 10:21 am

    it’s good to hear from a professional on this. before the new higher std. deductions mrs. smidlap would occasionally write off a home office and her studio expenses if she sold significant art and got a tax for for that. our accountant said something like not having to make profit every year but you had to show one every 3 years or something like that. it’s no big deal not to deduct those things any more anyhow with the 12k each std. deductions.

    • retirebyforty December 3, 2019, 1:29 am

      The business deduction is very useful when you have business income. It just takes it off the top of revenue. That’s in addition to standard deduction so I love it.

  • [email protected] December 2, 2019, 6:59 am

    One thing to keep in mind is that typically any professional advice is extremely conservative. The professional doesn’t want to be blamed or have to defend an audit even if it is won. The real determining factor from multiple court cases I have read have always come down to is it a “hobby” or a “business”. You can deduct expenses before you make money, but that is a red flag for an audit because it appears more like a hobby. If you truly wish to pursue it, then I would suggest a very detailed business plan. The plan needs to lay out a very detailed plan on how money will be made. A seat of the pants of hope to make money is going to be considered a hobby. Just because you make some money doesn’t mean it is not a hobby per the IRS and tax courts. You can deduct the whole families meal as long as you try some of all of it and give a detailed report on all of it. After all, you are giving a review of the restaurant and not just one dish at a restaurant. The problem is if you have a favorite restaurant it is hard to justify expenses for going back anytime soon. Once you get established, you may be able to approach restaurants to sell a review where basically they provide the meal for free in exchange for a review hoping it is positive and will promote their business. This would help keep expenses low thereby maximizing income to help show it is more of a business. Perhaps add a new menu item at the top of this blog as well to increase revenue. Something your viewers would have to click on so as not to annoy some of your financial blog followers. If your blog is a S Corporation you could have quarterly member meetings to discuss the quarter where meals are provided and tax deductible. Just make sure to have minutes and financial reports for each meeting and that the meals are not lavish.

    You could also look at setting up or finding a local RE/FI or similar chapter with monthly meetings at a restaurant conference room and could tax deduct the meeting meal.

    Meals and home office deductions are two hot ticket IRS audit items so you want to be careful and that is why any advice you get will usually be very conservative.

    • retirebyforty December 3, 2019, 1:27 am

      Ahh, that makes a lot of sense. We’ll wait until we make some money before deducting our food expenses for the channel. Stay tuned for more, soon. 🙂

  • Mr. Nomad Numbers @ NomadNumbers December 2, 2019, 6:15 am

    Hi Joe! That is a pretty cool idea. Too bad Eric said it can’t work (from the IRS perspective) as I was really thinking this could have been a great diversification of the online content we produce. We mostly wrote about cost of living around the world and are just scratching the surface with the current video we produce (https://www.nomadnumbers.com/drone/). Too bad. I will definitely keep following your blog for your next big idea 🙂

    • retirebyforty December 3, 2019, 1:26 am

      The drone footages are pretty cool. Maybe you can sell them for other people to use as stock footage. 🙂

  • Sally December 2, 2019, 6:05 am

    gamblers gonna gamble. GL

  • Xrayvsn December 2, 2019, 4:46 am

    With the new tax laws in place there were a lot of things taken away in terms of business deductions and I think entertaining took a hit.

    It makes sense that if your business is about food reviews that you are allowed to deduct only your portion of the meal and not the entire family.

  • Ernie Zelinski December 2, 2019, 2:10 am

    Joe: You may find this interesting. It is a Canadian tax case which went to court and the blogger actually won the case for writing off his expenses. It comes from Canada’s national newspaper the Globe and Mail.

    Maple Leafs blogger’s tax-loss case highlights difficulties of independence
    JAMES BRADSHAW – MEDIA REPORTER
    The Globe and Mail
    Published Sunday, Jul. 05, 2015 5:12PM EDT
    Last updated Sunday, Jul. 05, 2015 11:08PM EDT

    With the advent of cheap online technology, and a contracting media job market, some journalists have sought to reinvent themselves as independent brands. But fashioning a steady living remains an uphill climb, even for some established personalities.

    Case in point: Howard Berger.

    The long-time voice of Toronto Maple Leafs reporting for the FAN 590 saw the writing on the wall before the radio station he called home for 23 years cut him loose on June 1, 2011. He planned to reinvent himself as an independent hockey blogger. But a false start on the money-making side of his venture left him defending his tax-loss claims in federal court.
    Mr. Berger, 56, covered the Leafs as a radio reporter and self-declared fan for 17 years. Yet his effort to craft a small business from his expertise and reputation serves as a cautionary tale about the challenges of turning content and clicks into a paycheque, even as digital media expands rapidly. He claimed business losses of $26,540 in 2011 and $37,866 in 2012, according to court documents; his gross income from the blog in that span was $7,500.

    On June 19, Mr. Berger won his tax appeal – the amounts he claimed were not at issue, but rather whether his blog, titled Berger Bytes, should be considered a business or a personal hobby.

    The plan, as described by Mr. Berger and by Justice Campbell Miller, was “simple.” Mr. Berger started blogging the same night he lost his job, and soon paid $1,500 to build a more professional site. To stay in the loop and stand out from a multitude of other sports blogs, he kept travelling to Leafs road games. In 18 months, he spent more than $35,000 on flights and car rentals, plus another $23,000 on hotel bills. With next to no money coming in from the blog, he relied on his 21-month severance package from the FAN.

    “I really didn’t know what my goals were. It happened so quickly,” Mr. Berger said in an interview. “I wanted to make sure I stayed in the game.”

    He viewed the money poured into the venture early on “as essentially a startup cost.”
    Meanwhile, the Leafs struggled mightily, providing plenty of fodder. Even Justice Miller couldn’t resist a parenthetical jab: “It is taking immense internal restraint to not comment on the ongoing Leafs ‘legacy,’” he writes in his decision.

    Mr. Berger e-mailed some 500 hockey contacts, Don Cherry included, to spread the word. In the early stages, his blog typically attracted 3,000 to 4,000 visits in a day, and traffic has “gone up steadily,” he said, to more than 10,000 visits most days.

    Where some startup news sites have sought support from crowdfunding, Mr. Berger has kept his focus on sponsorships, expecting they would materialize if he grew his blog’s following. By the end of 2012, only one had stepped forward: Lawyer Richard Bogoroch paid $7,500 to put his firm’s logo on Bergerbytes.ca though the 2012 playoffs.

    In his judgment, Justice Miller acknowledges a one-man media operation can be expected to start slowly, likening it to “a struggling artist” in their early career. But he remains skeptical of Mr. Berger’s long-term prospects.

    “Businesses are out to make money and generally have an idea of how much and how feasible the money-making venture is. Mr. Berger does not seem to have a handle on this,” Justice Miller writes. “It leaves me to guess whether a steady readership in the few thousands is sufficient to attract sponsors to cover expenses of $30,000-$40,000 a year.”
    Mr. Berger agrees he could have planned better, but says he’s had “numerous discussions” with potential sponsors. His site is considered functional but “ugly,” so he expects to launch a redesigned page dubbed Between the Posts in the coming weeks, and is optimistic he will land a major sponsor for the site soon.

    Asked whether he now has revenue coming in – beyond inexpensive banner ads supplied by Google AdSense – he replied, “I don’t want to talk about that right now,” and declined to discuss other projects he has outside sports media.

    Four years in, he still writes on the Leafs almost daily, though he can no longer afford to travel to away games. And he says any sports blog should have modest revenue expectations. “It’s saturated out there,” he said. But, as jobs go, “it’s enjoyable as heck.”

    • retirebyforty December 3, 2019, 1:25 am

      That’s great! It’s much easier to make your case if you have some revenue. We’ll keep working on our channel. It’s a good way to build some skill for my son too.

  • Mr. Tako December 2, 2019, 12:16 am

    Interesting idea, but I think Eric’s right — Restaurant reviews are very local.

    It might work in the context of people searching for the “Best Thai in Portland” or “Best restaurants in Chang Mai”.

    The kind of thing tourists might look for when they go to visit a new place.

    Good luck with the YouTube channel though! I hear it’s a lot harder to get to the point where YouTube allows monetization.

    • retirebyforty December 3, 2019, 1:23 am

      I’ll get my channel up soon. YouTube is a great way to look for cool restaurants to try. I found some good places in Chiang Mai that way.

  • Lazy Man and Money December 1, 2019, 4:40 pm

    I had some friends do a lot of this around 2007-2008. As best I know they were never audited and I think their tax people said it was okay. (I agree with Eric, not those tax people, but what do I know?)

    One thought I had during this is that RBjr getting paid already, right? So in some way you could be doing a business lunch. Sounds like it could be a stretch though.

    • retirebyforty December 3, 2019, 1:21 am

      What’s the worse that can happen? You just have to pay back the amount + a bit of interest. That’s not too bad, right? It’s usually better to ask for forgiveness than permission. 🙂

  • Dave @ Accidental FIRE December 1, 2019, 4:05 pm

    Having seen your Instagram feed which always leaves me starving I think this is a good idea. And if you can port over even a fraction of your blog fans you’ll probably start generating some decent income!

  • Leif Kristjansen @ FiveYearFIREescape December 1, 2019, 3:32 pm

    So food blogging is out but then financial fees charged by financial institutions are in due to your existing profit, right?

    Loooooop hoooole!

  • Financial Freedom Countdown December 1, 2019, 3:13 pm

    Well I do enjoy your food posts so keep them
    coming even if you can’t deduct business expenses yet :). And if you are in SF let’s catch up for a business expensed lunch

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