Food As Fuel
1998-12-31 (updated 2012-01-31)
Commercial cycling can be a very physically demanding occupation. To obtain enough calories to do their work, cyclists have to eat a lot of food. Is this food a deductible business expense?
First, let's see why this question is so important. Most self-employed cyclists in the United States are in the 15% income tax bracket. In addition to income taxes, self-employed cyclists also have to pay payroll taxes (i.e., Medicare and Social Security taxes). Since they are self-employed, they pay both the employer and employee portion of these taxes, or an additional 15.3%. The total tax rate, then, for most self-employed commercial cyclists in the U.S. is about 30%. This tax is applied to their net income, which is their gross income minus any business expenses (equipment expenses, rent, advertising costs, and so on).
Suppose, as an example, a cyclist earns $25,000 a year in gross income, and spends, say, $5,000 on rent, phone service , advertising, and bike parts. His net income, then, is $25,000-$5,000 = $20,000, and he would pay about $20,000 x 30% = $6,000 in taxes every year.
Now, consider how much food a cyclist might consume. The Food and Nutrition Board of the U.S. National Research Council estimated the the average non-cyclist requires between 2000 and 2900 calories per day. Moderate cycling requires somewhere between 200 and 300 calories per hour, while more strenuous cycling (e.g., carrying heavy loads) requires much more. One online calculator for estimating calories needs can be found at http://www.msnbc.com/modules/quizzes/caloriecalc.asp. I recorded everything I ate during four work days last winter, and found I was consuming on average 5000 calories per day. To be conservative, let's say a typical working cyclist might require 4000 calories per day, while a comparable person not employed as a cyclist might need only 3000 calories.
So, cycling work by this conservative estimate would require an extra 1000 calories a day or 1/4 (= 1000 / 4000) of the food consumed. We'll call these calories "fuel calories", since they are the fuel that allow the cyclist to perform his or her work. Let's say the working cyclist spends $50 a week on food. One-fourth, or 1/4 x $50 = $12.50, of the $50 goes simply for fuel calories. If the cyclist works 50 weeks per year, this amounts to 50 x $12.50 = $625 per year spent on fuel calories.
If the working cyclist referred to in the example above could include this $625 with the other expenses, this would reduce net income to $25,000 - ($5,000 + $625) = $19,375 per year. The tax bill would be $19,375 x 30% = $5,812.50, or $197.50 less per year. Assuming a cyclist works 250 days per year, this $197.50 is equivalent to an extra two full days of income.
Wayne Scott's Case in Canada
Some years ago, Alan Wayne Scott, a foot courier in Toronto, Canada, realized he was spending a lot on food to do his work, and took his case to Revenue Canada (the Canadian equivalent of the IRS). He made the argument that if he were doing his work in an automobile, he would be able to deduct the cost of gasoline; hence, he should be able to deduct the extra food he was consuming to do his job. After a long, fifteen year battle, he was finally successful. (More information on Alan Wayne Scott's case can be found here.)
(Note: Commercial cyclists in Canada should consult Revenue Canada before trying to take this deduction. The following was posted by Steve Ford ([email protected]) on the [email protected] mailing list on March 18, 1999:
I just got off the phone with someone from Revenue Canada. He said that as the laws are now, a Canadian bicycle or pedestrian courier could not claim food as an expense. There is however a private members bill in the House of Commons that if passed may be retroactive and will allow couriers to claim back returns next year. But this year it's not considered a valid deduction. Anyone who claims food will be sent back a notice and may be audited! Regardless of Wayne Scott's landmark case. If any courier insists on trying to deduct food they will have to be prepared to take it to tax court. Which means they need receiptes [sic] and lots of them.
The Status of the Law in the U.S.
In November of 1998, we discussed this matter with a staff member from the office of Rep. Leonard Boswell, our representative in Congress. He forwarded our concern to Rep. Boswell, who in turn asked the IRS for guidance. In January, 1999, he received the following response from the IRS, and forwarded it to us:
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 20224 OFFICE OF CHIEF COUNSEL JAN 13 , 1999 The Honorable Leonard L. Boswell U.S- House of Representatives Washington, D.C. 20515-1503 Dear Mr. Boswell: This is in response to your letter dated December 4, 1998, requesting information concerning the deductibility as a business expense of amounts paid for food. We hope that the following general information will assist you and your constituents. Section 162 of the Internal Revenue Code provides, in general, that a deduction is allowed for all ordinary and necessary expenses paid or incurred during the taxable year in conducting a trade or business. Section 262(a) provides that no deduction shall be allowed for personal, living, or family expenses, unless the deduction is expressiy allowed in another section of ihe Code. Expenditures for food, the "fuel" for all human activities, whether or not business related, are considered inherently personal in nature. Therefore, the cost of food generally is not deductible as a trade or business expense unless it is paid or incurred while traveling away from home overnight or, under some circumstances, in connectior with business entertainment. The courts have consistently agreed with this position. For example, the Board of Tax Appeals in Smith V. Commissioner, 40 B.T.A. 1038 (i939), aff'd per cudam, i13 F.2d ii 4 (2nd Cir. 1940), stated at pages 1 03B-1 039:(T)he cost of the laborer's raiment... the very home which gives us shelter and rest and the food which provides energy, might all... be construed as necessary to the operation of business and to the creation of income. Yet these are the very essence of those `personal' expenses the deductibility of which is exblockquotessly denied.More recently, in Reading V. Commissioner, 70 T.C. 730 (1978), the United States Tax Court denied a deduction for food and other personal expenses that taxpayer had claimed should be allowed as a "cost of doing labor. The Court rejected this argumen as failing "to acknowledge the difference between people and property, and concluded that:One's living expenses simply cannot be his cost directly in the very item sold, i.e., his labor, no matter how much money he spends to satisfy his human needs and those of his family. Of course we recognize the necessity for expenditures for such items as food, shelter, clothing, and proper health maintenance. They provide both the mental and physical nourishment essential to maintain the body at a level of effectiveness that will permit its labor to be productive.... But the sale of one's labor is not the same creature as the sale of property...70 T.C. at pages 733-734. See also, Moss V. Commissioner; 758 F.2d 211 (7th Cir. 1955), which denied as a personal expense a deduction by members of a law firm of the cost of daily luncheon meetings. We hope that this information will clarify the matter for your constituents. If you have additional questions, please call Donna M. Crisalli at (202) 622-4920. Sincerely,
Robert A. Berkovsky Assistant Chief Counsel (Income Tax and Accounting) Chief, Branch 2
In short, the IRS will not allow commerical cyclists in the United States to deduct food as a business expense.
Where Do We Go From Here?
We haven't reviewed the details of the cases refered to in the IRS letter. It would be interesting to see if any of these cases involved cyclists. The court ruled in Wayne Scott's case that not everyone who does physical work can deduct the cost of food, "[o]nly where there is a corresponding business deduction allowed for fuel in the form of gasoline for the same type of business will a deduction for the extra food and water a human needs to consume as its fuel be allowed." This, they noted, "puts all [foot, bicycle, and automobile] couriers on an equal footing".
Taking a case before the IRS would be difficult and expensive. Given the IRS's previous rulings on the deductibility of food, it's unlikely the case would be successful, even if we made the argument Wayne Scott did.
Sen. Boswell's representative said to overturn the IRS would require a change in the tax code, which would have to be passed by Congress. He told us it is unlikely we could successfully persuade Congress to change the tax code by ourselves. To be successful, working cyclists would have to band together to lobby Congress.
Categories: Cycling for Profit