Change in Deductibility of Business Meals

meal deductions

By now, you’ve probably heard that the recent stimulus legislation included a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible.

In general, the business meals deduction for food and beverage is considered to be an “ordinary and necessary” expense of operating your business and thus are deductible. However, this deduction is limited to 50% of the allowable expense.

The CAA of 2021 adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.

The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule isn’t limited to meals eaten on the restaurant’s premises. Takeout and delivery meals provided by a restaurant are also fully deductible.

It’s important to note that, other than lifting the 50% limit for restaurant meals, this legislation didn’t change the rules for deducting business meals. All of the existing requirements continue to apply. Therefore, to be deductible:

  • The food and beverages can’t be lavish or extravagant under the circumstances.
  • You or one of your employees must be present when the food or beverages are served.
  • The food or beverages must be provided to you or to a “business associate.” This is defined as a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal in your business.

As a reminder, if food or beverages are provided at an entertainment activity, they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This will allow for a deduction for the meals portion of these expenses, as the entertainment, remains nondeductible under the Tax Cuts and Jobs Act.

Please let us know if you would like more information about deducting business meals or any other aspects of the new legislation.