- Find out how the deduction of business meals has changed since the TCJA.
- Learn more about the requirements for 100% deduction of business meals for 2021 and 2022.
- Learn how food and beverages from restaurants qualify for the deduction.
If you recall, the Tax Cuts and Jobs Act (TCJA), effective beginning in 2018, made some changes to business-related deductions. It eliminated the business-related deduction for entertainment, amusement or recreation expenses. However, there remains a business meal deduction for expenses considered ordinary and necessary for carrying on the trade or business. However, the meal may not be lavish or extravagant, along with some other requirements noted below.
Under TCJA, the business meal deduction continues to be 50% of the actual expense. Also remember that you must document business meals. Documentation must include the amount, business purpose, date, time, place and names of the guests and business relationship with you. Fiducial has more details about this change in deduction below!
Great news for the business meal deduction
For 2021 and 2022 only, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows businesses to deduct 100% of business meal expenses under the following circumstances:
- The food or beverages must be provided by a restaurant. The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule isn’t limited to meals eaten on the restaurant’s premises. You may also fully deduct takeout and delivered meals provided by a restaurant.
- The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business.*
- The expense is not lavish or extravagant under the circumstances.*
- The taxpayer or their employee is present at the furnishing of the food or beverages.*
- Your business provides the food and beverages to a current or potential business customer, client, consultant or similar business contact.*
IRS regulations expand on the last requirement by explaining that to be deductible, the food or beverages must be provided to a “person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”
Documenting the expenses
When your business provides food or beverages at an entertainment activity, you must document the food and beverages separately from the entertainment. The IRS does not consider entertainment as deductible. Also, use caution with the requirement that restaurants must provide food or beverages to qualify for 100% deductibility pending IRS regulations that define what constitutes a restaurant.
*Meals and beverages not provided by a restaurant will be deductible but limited to a 50% deduction of the expense if otherwise meeting the qualifications of a business meal.
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