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Deductibility of Meals Provided by Restaurants Increases to 100% in 2021 and 2022

Deductibility of Meals Provided by Restaurants Increases to 100% in 2021 and 2022

Service Businesses  |  Healthcare  |  Nonprofit  |  Manufacturing & Distribution  |  Government Contractors  |  Construction & Real Estate

There’s a win-win for business taxpayers and restaurants in the latest round of stimulus legislation, known as the Consolidated Appropriations Act, 2021.

Under the new legislation, business meals provided by restaurants in 2021 and 2022 are now 100% deductible. Previously, the deduction of food and beverage expenses associated with operating a business was limited to 50%. The new 100% deduction applies to meals in a restaurant, and takeout and delivery meals provided by a restaurant.

Let’s dig into the specifics.

Rules for Deducting Business Meals

Although the legislation removed the 50% limit on food and beverage expense, it did not change the rules for deducting business meals. To be deductible:

  • Food and beverages cannot be lavish or extravagant
  • You or one of your employees must be present when the food or beverages are served
  • The food and beverage expense must be tied to a current or prospective customer, client, supplier, employee, partner or professional advisor with whom you can reasonably expect to engage in your business

Special Note About Food and Beverages at “Entertainment Events”

There’s something you should know about food and beverages provided during an “entertainment activity.” In order for the food and beverages to be deductible, they must be purchased separately from the entertainment portion of the event, or their cost must be clearly stated on a separate invoice or receipt. Entertainment, unlike the food and beverages, is not deductible.

For example, if you as a business owner take a client to a sporting event and you purchase food and beverages at the event, you must show documentation for the food and beverages separate from the event tickets. The food and beverages are deductible; the tickets are not.

Help for Restaurants?

Hopefully, the more appealing full deduction will encourage businesses to use restaurants for business meals, which in turn will give a shot in the arm to struggling restaurants.

Need Help?

If you have any questions, contact us here or call 800.899.4623 for help. You can learn here about other ways the Consolidated Appropriations Act, 2021 affects businesses.

COVID-19 updates

Published on January 12, 2021