IRS Looking to Tax Free Lunches Offered at Tech Firms

employee lunch

Federal tax officials may bring more reality to the old adage “There’s no such thing as a free lunch.”

According to reports from the California Bay Area and Silicon Valley, the Internal Revenue Service is considering whether to tax free lunches and other perks routinely offered to employees at tech companies.

Silicon Valley Mercury News reported recently that employees at companies like Facebook and Google may have to pay taxes on free meals.  It’s a fringe benefit that their employers use as a selling point to recruit talented employees and keep them working on-site. A free lunch — and more — is seen by these and other companies as something they can offer to improve the workplace environment and morale.  But now the IRS is considering making that less free by taxing the benefit.

There are no details about what the tax would be on the free lunches offered at these workplaces. A report by The Wall Street Journal details debate among tax experts including tax attorneys practicing in the Silicon Valley.  They say the IRS has begun to focus on whether the meals constitute part of a compensation package.

Of course, the implications resonate far beyond Silicon Valley.

Businesses of all sizes offer a variety of benefits for employees that go beyond traditional payment for services.  Free coffee and soda beverages; free snacks; free meals; free dry cleaning services; free bus transportation; free health clinic services — the list goes on, and it’s all over the country.  Rules are complex about which additional compensations may constitute taxable perks.

The concern for the rest of us who do not get free lunches, is whether the American taxpayers are in effect giving already-highly-paid individuals a tax break.  Mark Maremont, a reporter for the Wall Street Journal, called the food spreads “lavish buffets.”

A former Google marketing employee told that the free lunches his wife, a current Google employee, still enjoys are “a phenomenal convenience, a terrific motivator, and a great social thing.” He said the proposed tax is “stupid.”

Employee Lunch Photo via Shutterstock


IRS Ups Deduction vs. Depreciation to $2,500 for Computers, Phones


The Internal Revenue Service has increased the amount small businesses can expense versus depreciate on their taxes each year. It’s a change that should simplify record keeping and increase the amount of a capital investment you can write off in a year.

Specifically, the federal agency has boosted the so-called “IRS safe harbor” limit businesses can deduct on a capital investment within a single year from $500 to $2,500.

A capital investment is one used by a business to acquire, produce, or improve tangible property. It might range from investment in a new building to investment in a new piece of equipment or other new technology.

The IRS says the change is the result of feedback on a request put out to businesses asking for ways to make paperwork easier. The agency says it received more than 150 letters from businesses pointing out that a $500 threshold didn’t cover the cost of many expensed items such as tablet computers and machinery.

For example, purchasing tablets for $2,000 would have to be amortized for four years at $500 each year. Raising the IRS safe harbor threshold for capitalization from $500 to $2,500 would allow for the deduction to come in one year.

Safe Harbor is a term for an amount that the IRS won’t question. As a part of this new rule, the IRS has said it won’t question $2,500 deductions in years previous to the official 2016 start.

IRS Commissioner John Koskinen says in an agency announcement, “We received many thoughtful comments from taxpayers, their representatives and the professional tax community. This important step simplifies taxes for small businesses, easing the record keeping and paperwork burden on small business owners and their tax preparers.”

Capitalization has traditionally taken place over years as a deduction on the depreciation of property that’s intended to last years. But now businesses can deduct a larger expense for technology in a single year leaving depreciation for much bigger ticket items. The IRS safe harbor change affects businesses that do not maintain an applicable financial statement (audited financial statement).

And, as always, deductions can be taken on repair and maintenance costs which are not counted under the $2,500 limit. For taxpayers with an applicable financial statement, the small-dollar threshold remains $5,000.

Deduction Definition Photo via Shutterstock