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LLC Taxes 2018 – Office Snacks (Bottled Water, Coffee, etc)

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What is the name of your state? New York

How would I categorize for 2018 taxes office snacks for employees (bottled water, coffee, etc)? I see some mention of it being “De Minimis fringe meals” but that I’ve been told is for food and beverage expenses that are excludable from the gross income of the recipient.

I’m not going to exclude the costs of bottled water (can’t drink from tap as the water in this town would be dangerous to drink), coffee and the occasional granola bars from the gross income of our employees. Am I reading that wrong?

Or would bottled water and coffee, etc, be categorized as “Office Supplies”? But then again I thought “Office Supplies” category for bottled water and coffee, etc, is only for refreshments for clients. If anyone knows, I’d highly appreciate some advice on this.
 


With 2018 the rules seem more strict. Office supplies I believe are 100% deductible, but this would seem more like something that might at most be 50% deductible, so I don't want to misdeclare anything.
 

Taxing Matters

Overtaxed Member
How would I categorize for 2018 taxes office snacks for employees (bottled water, coffee, etc)? I see some mention of it being “De Minimis fringe meals” but that I’ve been told is for food and beverage expenses that are excludable from the gross income of the recipient.
It's eligible to be treated as a de minimus meal fringe benefit. See page 17 of IRS Publication 15-B where it gives as an example of this benefit "Coffee, donuts, or soft drinks." That allows you to exclude it from the income of your employees but your deduction for this will be limited in that event.

Your other option is to track what each employee uses and include the cost of that as part of their gross income. That means they pay tax on the water they take, the coffee they drink, and you also end up paying FICA taxes (Social Security and Medicare taxes) on that, too. But the benefit to you is that the full cost is fully deductible as part of employee pay.

Bear in mind that your employees may well have a negative reaction if you tell them you're including the value of this stuff their pay. Once they find out you did that just to save a few bucks in tax they'll likely perceive you as cheap. I've already seen that with a client who switched to including it in the employee's pay after the law changed limiting the deduction for the fringe benefit, and it got kind of ugly. In the end, the employees ended up resentful, less productive, and less cooperative. That ended up costing him far more than the money he saved in tax.
 

Taxing Matters

Overtaxed Member
I'm not a tax expert but every business I know would call it an office expense.
It cannot be deducted as an office expense. It is either excluded from employee pay as a fringe benefit, in which case the employer is limited to deducting 50% of the cost, or it's included in employee pay and deducted as part of employee pay.
 

PayrollHRGuy

Senior Member
If you've got 10, 100 or 1000 employees that randomly take a bottle of water or a cup of coffee how do you split that up?
 

Taxing Matters

Overtaxed Member
If you've got 10, 100 or 1000 employees that randomly take a bottle of water or a cup of coffee how do you split that up?
If the employer wants to take the full deduction for this it will have to find a way to track who gets what and include that in the wages of the employees using those things. There are several ways I could see an employer doing it, but the hassle and expense of it all might not make it worth the tax saved by doing it.
 
If I don't want to include the cost of the bottled water, coffee and other snacks as part of the gross income of my employees, is there another way to (acceptable by the IRS) categorize it? I was thinking of just creating a category called "Office Employee Snacks" and separating out the bottled water and other snack items from the transactions for genuine office supplies like paper and staples, etc. Office supplies are I think 100% deductible, and if I need to make my employees pay taxes on the bottled water and snacks to get the 100% deduction via "de minimus meal fringe benefit", then I have a feeling this will need to be one of those 50% deductions. Right? Which wouldn't be considered "Office Employee Meals" (50% deduction if not a provable special celebratory event which would be 100%), but rather "Office Employee Snacks" (50% deduction). Right?

I'm going to have to separate out the bottled water and snack items from each existing transaction so that I can categorize it differently from "Office Supplies" anyway, correct?
 

Taxing Matters

Overtaxed Member
If I don't want to include the cost of the bottled water, coffee and other snacks as part of the gross income of my employees, is there another way to (acceptable by the IRS) categorize it?
The point of the change in the law was to restrict employers who wish to provide this sort of benefit to employees tax free to a deduction of 50% of the cost. Thus, you can't get around this problem by calling it something else to both keep it from being income to the employee and get a full deduction for it. In other words, you can't have your bottled water and drink it too. :LOL:

That means you have the two choices I outlined earlier: (1) treat it as a deminimus fringe benefit, with the result that you don't include the cost of it in the pay of your employees but you get limited to deducting only 50% of it or (2) you include the cost in the employee's pay, which allows you a full deduction of the cost as part of employee wages paid but results in your employees paying tax on it.
 
So I should go ahead and separate out the bottled water and snack items from each of the existing transactions (I was calling snacks and supplies "Office Supplies"), and then re-categorize the bottled water, coffee pods and snacks as "De Minimus Fringe Benefit (50% deduction)"? And with that, there's no need to mess around with employees' pay?
 
I rent gas containers (nitrogen, etc) for my business. The invoices had been including rent as part of the cost. Other costs were for delivery and the actual gas, etc. Do I need to categorize the rental of those gas containers as "Rent" (along with the monthly rent of the building we're in)?
 
And what if a meal is eaten with not a client or coworker, but with someone who is offering advice to the partner? Would that be considered a business meal with a client? Or would that need to be a separate category entirely, like "Meal (with outside advisor, offsite, business)"?
 

FlyingRon

Senior Member
Yes, you need to count the food and water as a fringe benefit (either de minimus or as a taxable employee benefit). The consensus here (and I agree) is to do the former.

I don't think the dunnage on the cylinders is a big concern. I'd bundle the costs of that in with the gas for whatever purpose the gas is for.

As long as there is a business motive for the dinner, it's a deductible expense, but such (typically when they are large in relation to the profits) is scrutinized as to whether is actually a benefit to the employee rather than a legitimate meal expense. Pub 463 has tons of information about this sort of thing.
 

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