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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 COVID-19.

Guidance on Restaurant Definitions

On April 8, 2021, the Internal Revenue Service (IRS) released guidance to help businesses determine what is defined as a restaurant.

According to the IRS, a restaurant is 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 are 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 employee’s gross income are considered a de minimis fringe.

Effective Date

The increased deduction and restaurant definitions are effective Dec. 31, 2020 through Dec. 31, 2021. It is important to note all other food and beverage expenses are still subject to the 50% deduction limitation unless some other exception applies.

If you need assistance determining your business meal deductibility, contact a Doeren Mayhew tax advisor.