100% Business Meal Tax Deduction in Effect Through 2022
Reminder: The temporary 100% deduction for eligible business meal expenses remains in effect through December 31, 2022. That means there’s still time to benefit from tax-saving opportunities: Hosting office events and holiday parties are two great ways to build relationships with your clients and team while taking advantage of the expanded business meal deduction. Keep in mind that on January 1, 2023, the deduction will return to its 2020 rate of just 50%, so plan accordingly!
Background: A Boost For the Restaurant Industry
Happily, most restaurants that were closed or takeout-only earlier in the pandemic are now offering dine-in service. That’s great news for our business clients, especially those in the restaurant industry, as well as eager diners. (We know we’re ready to enjoy eating out again!)
According to revised IRS guidelines, business meals provided by a restaurant are now 100% deductible instead of the 2020 rate of 50%. This temporary deduction is available for tax years 2021 and 2022 to help stimulate the restaurant industry, which was severely affected by the pandemic and stay-at-home orders.
Guidance published by the IRS in April 2021 clarified which businesses count as restaurants and when this deduction applies. We address both topics below.
What Is Considered a Restaurant?
For business meal deduction rules, the IRS defines a restaurant as a “business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” (In other words, carry-out food still qualifies as a restaurant expense.) However, businesses that sell pre-packaged foods not meant for immediate consumption — such as grocery stores, convenience stores, and liquor stores, among others — do not qualify as restaurants.
When Does the 100% Business Meal Deduction Apply?
There are a few caveats when it comes to what makes certain types of business meals fully deductible. For easy reference, here’s what the 100% meal deduction covers:
- Employee shift beverages and meals at the restaurant – Restaurants can fully deduct the food and drinks they furnish for their own employees. This is another helpful stimulus for the industry.
- In-office meals – Office meals from a restaurant are also 100% deductible, whether catered or carry-out. This applies to any meetings of employees, stockholders, agents, or directors.
- Meals during a seminar or conference – Meals served at seminars or conferences are also fully 100% deductible. Any such events, however, must be directly related to your trade or business.
- Business travel meals – Businesses can deduct the full cost of meals during travel. To avoid requiring employees to keep restaurant receipts or similar records, many companies use a per-diem system.
- Client business meal expenses – Meals with clients, customers, and vendors that will benefit your business are fully deductible. However, the taxpayer or an employee of the taxpayer must be present, and the event cannot be “lavish or extravagant,” according to the IRS. (The agency does not specify a dollar limit but considers the cost in context.)
If you have questions about the updated IRS guidance, including ways to make the most of the temporary 100% business meal tax deduction, don’t hesitate to contact us! The CJBS team tailors our Accounting, Business Consulting, and Tax Services to each of our clients, and we’re always available to answer any questions you may have.
The CJBS Team