Business meals are fully deductible – at least for a while – thanks to a little-noticed provision in the massive Consolidated Appropriations Act, enacted in late December 2020.

The provision was included in the Taxpayer Certainty and Disaster Relief Act of 2020, which was part of the year-end Consolidated Appropriations Act of 2020. The goal was to help restaurants that had been hit hard by the pandemic, while also giving businesses an expanded tax break for business meals.

The provision provides that the costs of restaurant meals purchased in connection with business are 100 percent deductible for meals purchased during the 2021 and 2022 calendar years.
The IRS this week released guidance on the provision detailing what types of food establishments qualify and when the standard 50 percent deduction still applies.

According to the guidance in IRS Notice 2021-25, to qualify for the 100 percent deduction:

  • The meal must not be “lavish or extravagant” under the circumstances.
  • The taxpayer (typically, business owner) or an employee must be present when the food or beverage is provided.

The guidance further defines a “restaurant” as an establishment that provides food and/or beverages for immediate consumption. This can include a traditional restaurant, fast food restaurant, or even a food truck. But it does not include a grocery store or convenience store, even if prepared food is purchased. The 50 percent deduction still applies to business-related purchases at those establishments.

The guidance also specifies that the 100 percent deductibility of food and beverage expenses does not apply to a food establishment on an employer’s own premises used to provide free or discounted meals to employees which are excluded from the employees’ income.

If you have questions about the deductibility of business meal expenses, contact your Barnes Wendling advisor.

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