What You Need To Know About The IRS Guidance For Business Meal Deductions
Articles by: Richey May, Jun 16, 2021
The IRS has released guidance related to the temporary 100-percent business meal deductions provided by a restaurant. The Consolidated Appropriations Act, 2021 temporarily increased the deduction from 50 percent to 100 percent for a business’s restaurant food and beverage expenses for 2021 and 2022. All other food and beverage expenses purchased at any establishment outside of a restaurant (see “restaurants defined” below) are still subject to the 50 percent deduction limitation unless some other exception applies.
The IRS guidance defines a restaurant as a business that prepares and sells food or beverages to retail customers for immediate consumption. Note that the food and beverages do not need to be consumed on the premises for the 100-percent deduction to apply. Therefore, if you purchase carryout from a restaurant and bring it to your office or a client’s office for lunch or dinner with a bona fide business purpose it would still qualify for this deduction.
Restaurants are not businesses that predominantly sell pre-packaged food or beverages that are intended for later consumption. Food or beverages purchased from such businesses are still subject to the 50-percent deduction limitation. Examples of businesses that are not restaurants include grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines, or kiosks. Therefore, items that you buy to stock your break room or kitchen at your office (i.e. coffee, soft drinks, water, snacks, etc.), that do not meet the definition of ‘restaurant’ would still be subject to the 50% limitation.
Please note, restaurants are not eating facilities located at an employer’s business that provide meals that are excluded from the employees’ gross income or are considered a de minimis fringe. This definition also applies to eating facilities on the employer’s premises that are operated by a third party.
To ease the administrative burden as well as gain visibility on these potential deductions, we recommend creating a separate account in your G/L Ledger that is strictly used for expenses that were paid to bona fide restaurants meeting the definition above. As we are half-way through 2021, you may want to reclass your meals accounts to account for items that will meet the 100% deductibility rule to ease the process at time of filing tax returns. This is similar to the recommendation of separating out meals and entertainment since entertainment is no longer deductible as of 2018.