June 10, 2021
Over the years restrictions have been placed on tax deductions for “perks” that seemed skewed toward the well-off. The deduction for business meals is one such perk.
However, the pandemic has had a severe effect on the financial health of the restaurant industry. To provide a boost for suffering eateries, in the closing days of the Trump administration the “Taxpayer Certainty and Disaster Tax Relief Act of 2020” was enacted as part of the “Consolidated Appropriations Act, 2021.” Some meals will be fully deductible in 2021 and 2022. Hopefully restaurants will be back to normal by then.
To be fully deductible as a business expense, the meal must not be extravagant, and business must be discussed. Food that is available to all employees, as at an office party, is also fully deductible. Expenses for entertaining clients, such as tickets to sporting events or expenses for playing golf, remain nondeductible.
The table below provides examples for this tax year.
New IRS guidance
The legislation does not define “restaurant,” so in March the IRS provided some clarity on the subject. “For this purpose, 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.”
A company-owned facility that provides meals to employees is not considered a restaurant under this law. However, if the value of employee’s meals is included in their W-2, the employer may take a corresponding deduction.