January 18th, 2021

Business Meals – Now 100% Deductible

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Author: David S. De Jong

Restaurant after Covid

Do you remember when business meals were always fully deductible? You would need to look back in time to 1986.

However, with the hope of assisting the struggling restaurant industry, Congress included a provision in the 5,593-page Consolidated Appropriations Act which effective 2021 restores the 100 percent deduction “for food or beverages provided by a restaurant, and paid or incurred before January 1, 2023.”

Pending guidance, the 100 percent deduction would appear to apply to takeout meals from eating establishments but not to groceries from which you might make a meal for your clients.

Unless extended beyond 2022, the deduction for business meals will revert in most cases to 50 percent of expenses. Always 100 percent deductible are food and drink for resale and those snacks and drinks placed in reception areas primarily for customers as opposed to staff.

Additionally, meals furnished with a nondiscriminatory employee social or recreational activity are always 100 percent deductible. Thus the costs of a holiday party for all employees or a summer departmental picnic would be 100 percent deductible even after 2022 but those put out for a management meeting would be only 50 percent deductible.

As the two-year liberalization of the deduction for business meals was for purpose of bringing people back to restaurants in the post-COVID era, business entertainment, such as sports tickets and golf outings, remains completely nondeductible. Food and drink served before, during or after the game or outing, however, is treated as a meal if purchased separately and the costs are separately stated.

Qualification of a business meal for a tax deduction requires that the expense be “ordinary and necessary” and not be lavish or extravagant for the circumstances. Additionally, the primary purpose of the meal must not be pleasure, a business discussion must have occurred during the meal and there must be an expectation of profits.

So, as dining returns, enjoy a good business meal with your client or referral source. Keep the receipt showing the date, place and amount of the expense and note the attendees, relationship and business purpose of your meal. And enjoy your steak and lobster (or your cheeseburger and fries)!

You can find more on issues affecting businesses and individuals in our COVID-19 Resource Center.