Temporary Change To Business Meal Deduction For 2021 & 2022

In an effort to jump start the economy and help in the recovery of the restaurant industry, the Federal government is allowing a 100% business meal deduction for 2021 and 2022 for the purchase of food and beverages provided certain requirements are met.

The Old General Rule Still Applies

In general, no deduction is allowed by a business for the expense of any food or beverage unless:

1. Such expense is not lavish or extravagant under the circumstances; and
2. The employer or employee is present at the meal.

If both of these requirements are met, the taxpayer is generally allowed a deduction for 50% of the cost of the meal.

Just a reminder, no deduction is allowed for entertainment. If a meal is included with the entertainment, it is not deductible unless the food and/or beverages are purchased separately, or are separately stated from the entertainment in an invoice, bill, or receipt.

Temporary Restaurant Exception Allows a 100% Deduction

Under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, a 100% deduction will generally be allowed for expenses for food or beverages from January 1, 2021 through December 31, 2022, provided:

1. The two rules stated above are met; and
2. The food and/or beverages are provided by a restaurant.

A “restaurant” is defined as “a business that prepares and sells food or beverages to retail customer for immediate consumption,” regardless of whether the meal is consumed on the business’s premises. Therefore, a 100% deduction will generally be allowed for take-out orders as well.

“Restaurant” does not include businesses that primarily sell pre-packaged food/beverages that are not for immediate consumption such as grocery stores, specialty food stores, beer, wine, or liquor stores, drug stores, convenience stores, newsstands, or a vending machines or kiosks. Meals purchased from these types of business will continue to be subject to the 50% limitation rules.