With the passage of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, there are several tax changes. One change we wanted to make you aware of is the deduction for business meals. Business meals from a restaurant are now 100% deductible. This increase in deductibility covers the tax years 2021 and 2022 only. To deduct 100% of business meals, the following factors must apply:
- The food or beverages must be provided by a restaurant. The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule is not limited to meals eaten on the restaurant’s premises. Takeout and delivered meals provided by a restaurant are also fully deductible.
- The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business.
- The expense is not lavish or extravagant under the circumstances.
- The taxpayer or their employee is present at the furnishing of the food or beverages.
- The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact.
IRS regulations expand on the last requirement by explaining that to be deductible, the food or beverages must be provided to a “person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”
Meals and beverages not provided by a restaurant will be deductible, but those meals will be limited to a 50% deduction of the expense, if otherwise meeting the qualifications of a business meal. When food or beverages are provided at an entertainment activity, the food and beverage must be documented separately from the entertainment because entertainment is not deductible. Also, be cautious of the requirement that food or beverages be provided by a restaurant to be eligible for 100% deductibility. IRS regulations are pending regarding what constitutes a restaurant.
Please watch for future blogs that will provide additional information and guidance regarding the new bill.