In an effort to stimulate sales and support for the hit hard restaurant industry due to covid-19, the IRS has increased the deduction for business related meals from 50% to 100% deductible for 2021 and 2022.
Of course, they like to complicate things, not all meals are eligible. Below is the direct code explaining what is and isn’t eligible.
If you have meals deduction for your business, please be sure to split the costs into the two categories when submitting your deduction for us to prepare your taxes.
We should see:
- Meals 100% $xx
- Meals 50% $xx
You do not need to provide the individual receipts for us to go through them to verify, we need you to do this for us. As always, even if you are not providing us the detailed receipts, keep them for your records in the event of an audit.
Here is the code to explain what is 100% deductible vs 50%
Restaurant Meals
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), included in the Consolidated Appropriations Act, 2021 (CAA, 2021), enacted a provision allowing a 100% deduction for business food and beverage expenses provided by a restaurant that are paid or incurred in calendar years 2021 and 2022 [IRC Sec. 274(n)(2)(D)]. Meals provided by a restaurant include takeout and delivery meals.
The IRS provided guidance explaining when the temporary 100% deduction applies and when the 50% limitation continues to apply in Notice 2021-25. A business that primarily sells pre-packaged food or beverages not for immediate consumption is not considered a restaurant. Therefore, food or beverages purchased at a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk are not treated as food purchased from a restaurant and continue to be subject to
the 50% deduction limitation.
Additionally, Notice 2021-25 clarifies that for Section 274(n)(2)(D) purposes, the following facilities are not considered a restaurant:
- Any eating facility located on the employer's business premises that furnishes meals to employees that are excluded from the employee's income under IRC Sec. 119.
- Any employer-operated eating facility treated as a de minimis fringe benefit under IRC Sec. 132(e)(2), even if operated by a third party.
From Notice 2021-25:
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; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. The 50-percent
limitation of § 274(n)(1) continues to apply to the amount of any deduction otherwise allowable to the taxpayer under chapter 1 for any expense paid or incurred for food or beverages acquired from such a business (unless another exception in § 274(n)(2) applies to such expense).
