Let’s go to the restaurants! Temporary 100% Business Meal Deduction

Did you know that between January 1, 2021, and December 31,2022, business meals purchased at a restaurant by an owner or employee are 100% deductible if certain conditions are met.

• “ ‘Restaurant’ means 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.”
• The business expense must “not be lavish or extravagant under the circumstances.”
• “The taxpayer (or an employee of the taxpayer) must be present at the furnishing of such food or beverages.”

It’s important to note that a restaurant does NOT include a “business that primarily sells prepackaged food or beverages not for immediate consumption, including a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. The 50% limitation continues to apply to the amount of any deduction otherwise allowable to the taxpayer for any expense paid or incurred for food or beverages acquired from those types of businesses.”

• In addition, an employer may not treat as a restaurant for purposes of § 274(n)(2)(D), (1) any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income under § 119, or (2) any employer-operated eating facility treated as a de minimis fringe under § 132(e)(2), even if such eating facility is operated by a third party under contract with the employer as described in § 1.132-7(a)(3).

Why?

The IRS is trying to support the restaurant industry which has been impacted by the COVID-19 shutdown, so business owners are more inclined to order food or beverages from these businesses.

Claiming the 100% Meal Expense Deduction

It’s imperative you retain receipts with the date, time, attendees, and business purposes of the meeting. In the case of an IRS audit, you will have to provide sufficient support documentation for every claimed business meal. You should remember your receipts should always have the 4 W’s (Where, When, Who was there, and What was the business nature of the meal). It is a good practice to write down the names of the people you ate with along with a brief description of what was discussed throughout the meal. The IRS recommends record retention length of 7 years, keeping only your bank statement alone will not be sufficient if you face an IRS audit.

Finally, you should keep appropriate records in your accounting software. You may need to create sub-accounts to separate business meals purchased at restaurants versus business meals purchased at a grocery store, vending machine…etc. If your YTD bookkeeping has not been fully updated or reviewed, meals and expenses could be subjected to review during the close process.

If you have questions about the information outlined above, contact Lindsay Young, Senior Manager in our Entrepreneurial Services Group.

About the Author

Related Services