100% Meals Deduction for 2021 and 2022
Since 1986, lawmakers have limited business meal deductions—most recently to 50 percent. This was meant to prevent the abusive “three martini lunch.”
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 percent business meal deduction for calendar years 2021 and 2022.
To qualify for the 100 percent deduction, you need a restaurant to provide 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 percent deduction if you order a restaurant meal that’s delivered by Door Dash. The delivery fee and tip are also 100% deductible. And yes, alcoholic beverages are also deductible.
But as under prior law, your deductible business meals must be ordinary and necessary business expenses.
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 percent 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
- Drug stores
- Convenience stores
- Vending machines or kiosks
In general, the 50 percent limitation applies to business meals from the sources listed above.
The use of a restaurant creates the 100 percent deduction.
Per diem meal allowance – The IRS has stated that taxpayers may treat the per diem meal allowance as being attributable to food or beverages provided by a restaurant for tax years 2021 and 2022. The per diem rate for 2021 is $64 per day unless the location qualifies as a high-cost locality, and in that case, the rate is $74 per day.
Consult with your tax professional at Ketel Thorstenson about this or other tax matters because each situation is different. Don’t navigate the difficult and ever-changing tax codes and legislation on your own. Ketel Thorstenson CPAs and tax professionals receive advanced training and continuing education all year long to keep our service on the forefront of the tax industry. Call us today for guidance on tax planning tax return preparation, and tax legislation affects or questions.