Hey 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.
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
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?”):
- An ordinary expense is one that is common and accepted in your industry.
- 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.
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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