The current tax rules limit the deduction to 50% for the amount incurred for business meals if they are incurred in the ordinary course of business and not considered lavish. The Consolidated Appropriations Act of 2021, which contained several provisions to help businesses impacted by COVID-19, provided a temporary exception to the limitation of food and beverage expenses if they are provided by a restaurant. For 2021 and 2022, businesses will be able to deduct 100% for food and beverages. In 2021, the IRS issued two notices, Notice 2021-25 and Notice 2021-63, clarifying the deductibility of meals and entertainment for 2021 and 2022.
Exception for Meals from Restaurants
In Notice 2021-25, the IRS provides guidance on the definition of 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. A restaurant does not include a business that sells pre-packaged food, such as a grocery store, a beer store, or a convenience store. If the business is not a restaurant, the 50% limitation on deductibility of meal expenses still applies. Additionally, an eating facility on the premises of a business may not be deemed as a restaurant if it is treated as a de minimus fringe benefit to the employees or provided for the convenience of the employer.
What if you use per-diem rates?
In Notice 2021-63, the IRS clarified that taxpayers using a per-diem rate to calculate business expenses while traveling away from home can deduct 100% of the meal portion of the per diem rate as food and beverages provided by a restaurant.
Our Recommendation
As we approach the end of 2021, businesses should document situations where the meals expense would qualify as being 100% deductible. The GBQ team can help analyze your meals expense to maximize your deduction.
Article written by:
Kevin Dunn, CPA
Director, Tax & Business Advisory Services
