New Business Meal Tax Provision

 

The recent stimulus legislation included an important provision. This provision removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022. Which makes those meals fully deductible. Here are the details.

Breakdown

In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.

The new legislation adds an exception to the 50% limit for expenses of food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.

The use of the word "by" rather than "in" a restaurant makes it clear that the new rule isn't limited to meals eaten on the restaurant's premises. Takeout and delivery meals provided by a restaurant are also fully deductible.

Qualifications

It is important to note that, other than lifting the 50% limit for restaurant meals, the legislation doesn't change the rules for deducting business meals. All the other existing requirements continue to apply. Thus, to be deductible:

• The food and beverages can't be lavish or extravagant under the circumstances.

• You or one of your employees must be present when the food or beverages are served.

• The food or beverages must be provided to you or to a "business associate." This "business associate" is defined as a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal in your business.

If food or beverages are provided at an entertainment activity, they must either be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.

Bottom Line

As with all business and finance techniques, we highly suggest you consult with your financial advisor. The information presented above is appropriate in most general cases, but specifics to that particular applicant may preclude a technique’s applicability.

Holden Moss CPAs is dedicated to aiding businesses in this difficult time. If you would like more information about deducting business meals or any other aspects of the new legislation, give us a call at (919) 556-6216. Contact us via email at admin@holdenmoss.com. We look forward to working with you.

*Updates and guidance are issued daily. The information above may change.

 
Steve Moss