Business meals tax deductions have been limited by lawmakers since 1986: first to 80%, and then to 50% (unless a limited exception applies).
But on December 27, 2020, in an effort to help the restaurant industry due to the COVID-19 pandemic, lawmakers enacted a new, temporary 100% business meal deduction for calendar years 2021 and 2022.
To qualify for the 100% tax deduction, you need a restaurant to provide you with the food or beverages.
The law requires only that the restaurant provide the food and beverages. You don’t have to pay the money directly to the restaurant. For example, you qualify for the 100% deduction if you order a restaurant business meal that’s delivered by Uber Eats or Grubhub.
Your tax deductible business meals must be ordinary and necessary business expenses, and they must not be subject to disallowance as entertainment, etc.
You must be present at the business meal, and you must provide the business meal to a person with whom you could reasonably expect to engage or deal with in the active conduct of your business, such as a customer, client, supplier, employee, agent, partner, or professional advisor, whether established or prospective.
Remember, to qualify for the 100% deduction, you need a restaurant. The IRS recently provided definitions and examples of what is and is not a restaurant.
A restaurant is “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.” It is not any of the following:
- Grocery stores
- Specialty food stores
- Beer, wine, or liquor stores
- Convenience stores
- Drug stores
- Vending machines or kiosks
In general, the 50% limitation applies to business meals from the sources listed above. The restaurant creates the 100% deduction.
And as always, be mindful of your record retention requirements for tax compliance.