The tax bill passed in December 2020 allows business meals and beverages provided by a restaurant to be 100% deductible for a two-year period, January 2021 through December 2022. The IRS has provided further guidance in Notice 2021-25. Such meals have previously been tax-deductible at 50%. Meals other than restaurant meals are still subject to the 50% limitation.
Restaurants prepare meals and beverages for “immediate consumption by retail customers”. These meals can be consumed on-premises or taken out to eat. Businesses that predominately sell pre-packaged food and beverages intended for later consumption are not counted as restaurants. This means meals from grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, kiosks, and vending machines are not counted as restaurant meals (and would still be subject to the 50% limitation).
This law does not change the rule entertainment expenses are not deductible, nor are lavish or extravagant meals. Food at an entertainment facility may be partially deductible if separately stated. Meals furnished tax-free to employees at an onsite facility are not treated as being from a restaurant, even if the eating facility is operated by a third party.
Taxpayers need to change their chart of accounts to separate business meals subject to the 50% limitation and business meals now 100% deductible to insure year-end tax reporting will be accurate. Changes need to be made retroactively to 1/1/21. Please contact us if you need further information.
Any Questions?
This new tax bill presents change. HoganTaylor's Tax professionals can help with any questions you might have. Contact Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com, or Denise Felber, Tax Partner, at dfelber@hogantaylor.com, for more information.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
