Good News for Business Deductions — Meals are Now 100% Deductible

With the COVID-19 Relief Bill signed on December 27, 2020 came good news for businesses. The act made temporary changes to deductions for business meals for the tax years of 2021 and 2022. Businesses are now permitted to fully deduct business meals for those two years which would have normally been at a 50% deductible level. The objective of the temporary deduction change is to stimulate the restaurant industry, so it is important to always keep in mind that this change relates only to food and beverage purchased at a restaurant and is separately stated in your bookkeeping as such. What qualifies for a 100% deduction due to the COVID-19 Relief Bill:

  • Meals, food and beverages purchased for clients, partners and prospects at a restaurant, or using a catering company related to a restaurant.
  • Meals, food and beverages provided to employees, stockholders, directors and agents, including meals brought into the office, as long as they were provided by a restaurant, or a catering company related to a restaurant.
  • While there has not been a change to the deduction level for travel expenses, any meals that are paid for at a restaurant while traveling can qualify.
  • Meals at a seminar or conference purchased at a restaurant also qualify.

The notice 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.” It also explains that restaurants do not include businesses that primarily sell pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, liquor store, drug store, convenience store, newsstand, or vending machine kiosk. Therefore, office snacks such as food and coffee brought into an office purchased from a “non-restaurant” do not qualify for the 100% deduction. Eating facilities located on a business premise or an employer-operated eating facility such as a cafeteria are not considered restaurants, and business meals purchased from facilities that do not fit the restaurant description remain limited to a 50% deduction.

The 100% deduction is allowed at a restaurant if the expense isn’t “lavish or extravagant,” the taxpayer or employee of the taxpayer is present at the meal, and the meal is provided to the taxpayer or business associate such as a customer or client.

Deductions that have not changed and are still subject to levels established by the 2017 Tax Cuts and Jobs Act include:

  • Meals included as taxable compensation to an employee or independent contractor (100% deductible)
  • Meals sold to a client or customer (100% deductible)
  • Food offered to the public for free (100% deductible)
  • Office holiday party or picnic (100% deductible)
  • Team-building events (100% deductible)

What does not qualify for a 100% deduction: Sporting event tickets, golf fees, play or concert tickets, tickets to amusement parks, club memberships, club-related expenses, transportation to /from a restaurant for client business meals, meals during entertainment that are not listed separately on an invoice. However, the food purchased at an entertainment venue, if separately stated from the ticket sales, and purchased from a restaurant can qualify.

Hart Vida & Partners recommends that for bookkeeping purposes you keep track of the different types of expenses to determine their deductibility. Setting up separate accounts to categorize 100% qualifying expenses vs. 50% deductible expenses will make the tax return preparation process much easier. Very specifically note the vendor (restaurant) providing the food and beverage, and who (i.e. client name) was taken out or provided the meal. Keep good records and all receipts.

If you have questions about any of these deduction stipulations, or need assistance adjusting your bookkeeping, please reach out to us. You may reach our Office Manager, Maria Mosa, at mmosa@hvandpartners.com or 914-617-7620 ext. 118, and she will put you in touch with the correct partner to assist you.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Hart Vida & Partners recommends that you consult professional tax, legal and accounting advisors before engaging in any tax, legal and accounting action or transaction.

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