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By James O’Rilley, CPA, MST – Shareholder and Tax Group Practice Leader

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 temporarily increased the tax deduction from 50% to 100% for a business’s restaurant food and beverage expenses for 2021 and 2022. The increase was intended to encourage patrons to support the struggling restaurant industry in the wake of the COVID-19 pandemic. It’s important to note that business owners can still take advantage of this deduction until the end of this year. Doeren Mayhew’s business tax accountants provide an overview of this deduction below.

What Qualifies

To qualify for the 100% deduction, consider the following:

  • The business owner or an employee of said business must be present during the meal
  • Meals must be from a restaurant for immediate on-premises or off-premises consumption
  • Payment or billing of the meal must fall between Dec. 31, 2020, and Jan. 1, 2023
  • The meal cannot be considered “lavish or extravagant”

If the meal does not follow the above criteria, all other expenses are still subject to the 50% deduction limitation, unless another exception applies.

What is Considered a “Restaurant”?

According to the Internal Revenue Service (IRS), a restaurant is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption. Consumption does not have to occur on-premise to be 100% deductible.

The agency clarified that selling pre-packaged foods or beverages intended for later consumption, such as grocery stores, convenience stores and vending machines is still subject to the 50% deduction limit. Furthermore, it indicated eating facilities on the employer’s premises that are operated by a third party or provide meals excluded from employees’ gross income are considered a de minimis fringe.

Use It or Lose It

This 100% deduction creates increased opportunities for business leaders to meet with prospects and bolster business relationships. It is also an opportunity to host employee get-togethers to thank them for their hard work. Be sure to keep your receipts for any business-related meals, including the date of the outing and who attended. If you need assistance determining business meal deductibility, contact a Doeren Mayhew business tax accountant today.