100% Deduction for Business Meals

Usually, only 50% of the cost of a business meal is deductible. The Consolidated Appropriations Act of 2021 dispenses with the 50% limitation for 2021 and 2022.

The 100% deduction, however, only applies to business meals that are also "restaurant meals". Clearly, the purpose of this temporary provision is to assist the restaurant industry after the devastation wrought by COVID-19.

Taxpayers must still meet the documentation and business purpose requirements of prior law. In addition, they must come from a restaurant:

"The term '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. However, a restaurant does not include a business that

primarily sells pre-packaged food or beverages not for immediate consumption, such as

a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience

store; newsstand; or a vending machine or kiosk. (IRS Notice 2021-25)

Additionally, the following categories of "business meals" that previously were only 50% deductible are now, temporarily, 100% deductible:

• Meal expenses paid for an employee while out of town on business, and,

• Meals provided to employees for the employer's convenience on the employer's premises.

Meals consumed at employee holiday parties and employee outings continue to be 100% deductible.

Business should use separate general ledger accounts for keeping track of the 50% / 100% deductible expenses.

- Mark Gleason CPA