Temporary 100% Deduction on Business Meals

You have been chasing that potential clients for months and he finally agrees to a meeting – a dinner meeting.  Great!  He picks a nice restaurant and you pick up the tab (of course!) – but then when your CPA prepares your tax return you find out you can only deduct HALF of the tab on your tax return.  While we all secretly wish we could change THAT rule – we can’t.

However, for a brief time, they IRS is giving you a small reprieve (thanks to COVID) for expense paid or incurred between December 31, 2020 and before January 1, 2023 for food and beverages provided by a restaurant.  What does that mean for you as a business owner?

Allowable 100% Deduction: The expense must fall under the definition of “Restaurant” – which is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverage is consumed on the restaurant’s premises.

Allowable 50% Deduction: If the food or beverage is “pre-packaged” and not intended for “immediate consumption” – the 50% limitation will continue to apply.  Also, if the “restaurant” or “eating facility” is located on the employer’s premises and is used to furnish meals for an employee – it is not considered a “Restaurant” under the 100% Deduction Exception.

Now, with all that said, keep in mind what the IRS will accept with regard to “business meals” – which means the expense cannot be “lavish” or “extravagant” AND the taxpayer (or its employee) must be present at the meal.

For more information, please refer to the IRS Notice 2021-25