IRS Denies Pizza Deduction

By August 15, 2014 Businesses

In a recent tax court case, the IRS has successfully denied a “pizza deduction” for wages paid out in, well, pizza (Ross, TC Summ. Op. 2014-68).  In this case, a small business owner who prepared taxes and did business consulting had “hired” her kids to do small jobs around the office and paid them in pizza.  Rather than trying to deduct the pizza as office meals expense, she issued her children W-2 forms for the value of the pizza, among other things.  However, the IRS viewed the small jobs and payments in food as examples of parenting rather than true employment.  The entire pizza deduction write-off was disallowed.

On the bright side, her three children ages 8 through 15 won’t have to package up two slices per box and mail them in to the IRS.

Paying your children to work for you can be a legitimate write-off if they are performing regular duties and being compensated fairly for their work.  However, this often-abused deduction could receive pretty tough scrutiny in an audit.  Receiving W-2 wages allows a child to contribute to an IRA account and in many cases provides them with wages that are tax free or taxed at a lower bracket than their parents’ income.  The tax advantages make this strategy very appealing.

If you have questions about the facts and circumstances of your situation, including whether a pizza deduction is appropriate, please be sure to contact a tax professional.  Tax mistakes can seriously cut into your eating out budget.