Beginning January 1, 2021, through December 31, 2022, businesses may claim an income tax deduction for 100% of the food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant under the circ*mstances. In addition, the portion of per diem rates paid to employees that cover meal expenses may be deducted as restaurant meals.
In order to assist the hospitality and restaurant industry recovering from the COVID-19 pandemic, the Taxpayer Certainty and Disaster Relief Act of 2020 (“Act”) temporarily increased the amount of income tax deduction allowed for food and beverage expense. The Act provides a temporary exception to the general rule limiting deductions to 50% of qualified meal and beverage costs. The Act increased the deduction to 100% for restaurant meals. The increase in allowed deduction applies to meals expense incurred in 2021 and 2022. The IRS issued two Notices to help businesses claim their deductions.
Notice 2021-25 provides guidance to businesses to determine which meals qualify as “restaurant meals.” The term “restaurant” for this purpose means:
- 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.
The term restaurant does not include:
- a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.
Notice 2021-63 provides guidance for employers on how the temporary 100% business deduction for food or beverages from restaurants applies to taxpayers using per diem rates to reimburse employees for travel expenses. The notice sets forth a special rule to allow the taxpayer to treat the full meal portion of a per diem rate or allowance as being attributable to food or beverages from a restaurant beginning January 1, 2021, through December 31, 2022.
Rev. Proc. 2019-48 provides rules for taxpayers that choose to use a per diem rate to substantiate, under Sec. 274(d) and Sec. 1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home for: a) lodging, meal, and incidental expenses; b) meals and incidental expenses only; or c) incidental expenses only. Section 6.05 of Revenue Procedure 2019-48 can be used to determine the meal portion of a per diem rate or allowance paid or incurred. This meal portion can be deducted in full as restaurant meals expense under Notice 2021-63.
Food and beverage expenses that do not satisfy the 100% deduction limit for restaurant meals may still qualify for the 50% deduction limit. Meal expenses that cannot be separated from entertainment expenses are considered entertainment and no deduction is allowed for these costs under Section 274.
For questions about qualifying restaurant meals and per diem expenses, please contact Deborah Walker or your Cherry Bekaert tax advisor.
Related Guidance
FAQs
Here are some common examples of 100% deductible meals and entertainment expenses: A company-wide holiday party. Food and drinks provided free of charge for the public. Food included as taxable compensation to employees and included on the W-2.
What is the temporary allowance of full deduction for business meals? ›
Beginning January 1, 2021, through December 31, 2022, businesses may claim an income tax deduction for 100% of the food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant ...
What items are 100% deductible? ›
What Is a 100 Percent Tax Deduction?
- Furniture purchased entirely for office use is 100 percent deductible in the year of purchase.
- Office equipment, such as computers, printers and scanners are 100 percent deductible.
- Business travel and its associated costs, like car rentals, hotels, etc. is 100 percent deductible.
The deduction for unreimbursed non-entertainment-related business meals is generally subject to a 50% limitation. You generally can't deduct meal expenses unless you (or your employee) are present at the furnishing of the food or beverages and such expense is not lavish or extravagant under the circ*mstances.
What qualifies as a business meal expense? ›
Note for the 2021 and 2022 tax years: this deduction covers 100% of business meals that are dine-in, catered or take-out; and a 50% limit is in place for food and beverage not from restaurants. Tickets to shows or sporting events you give to clients to promote business are deductible.
Is Starbucks 100% deductible? ›
You can deduct 100 percent of the expense because Starbucks prepares and sells food or beverages to retail customers for immediate consumption. Example 3. You meet for lunch with a customer at your office.
Does Section 210 allow for a temporary allowance of full deduction for business meals? ›
Full Deduction for Business Meals
Section 210 of the act temporarily raised the allowance of business meals (for food or beverages provided by a restaurant) under IRC § 274(n) to 100% from 50% for tax years 2021 and 2022.
Can I deduct meals at work? ›
For a meal to be deductible, it must comply with the following rules: The meal must serve a business purpose. The business owner or an employee must be present for the meal. The meal must not be lavish or extravagant, meaning it must be reasonable based on the facts and circ*mstances.
Is per diem considered meals and entertainment? ›
Per diem is an allowance paid to your employees for lodging, meals, and incidental expenses incurred when travelling.
What deduction can I claim without receipts? ›
What does the IRS allow you to deduct (or “write off”) without receipts?
- Self-employment taxes. ...
- Home office expenses. ...
- Self-employed health insurance premiums. ...
- Self-employed retirement plan contributions. ...
- Vehicle expenses. ...
- Cell phone expenses.
Things like free coffee, donuts, and snacks provided at the workplace, as well as onsite meals for employees working overtime, are considered “meals provided for the convenience of the employer.” In 2017 and prior tax years, these were 100% deductible.
What are five examples of deductible expenses? ›
If you itemize, you can deduct these expenses:
- Bad debts.
- Canceled debt on home.
- Capital losses.
- Donations to charity.
- Gains from sale of your home.
- Gambling losses.
- Home mortgage interest.
- Income, sales, real estate and personal property taxes.
The IRS doesn't require that you keep receipts, canceled checks, credit card slips, or any other supporting documents for meal expenses that cost less than $75. However, you must still document the facts listed above.
What makes a meal tax deductible? ›
To qualify for the enhanced deduction:
The business owner or an employee of the business must be present when food or beverages are provided. Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
Are travel meals 100% deductible? ›
When you're on the road, there's nothing more enjoyable than a good meal. But the food will likely taste even better if you can deduct the cost from your taxes. Meal expenses incurred while traveling for business are 50% deductible.
Is buying lunch for employees tax deductible? ›
In 2023, however, the deductions for business meals and entertainment have reverted to the values outlined in the 2017 Tax Cuts and Jobs Act (TCJA): most business meals are now 50% deductible instead of 100% deductible as they were in 2021 and 2022. Most entertainment expenses are not deductible.
What is 80 deductible meals? ›
If you are subject to the Department of Transportation (DOT) hours of service limits, the allowable deductible percentage is increased to 80% for business meals consumed, or related to, any period of duty for which those are in effect.
Can I write off my lunch if I am self-employed? ›
Meal Expenses in Your "Tax Home"
Self-employed filers can deduct an expense if it is necessary for business. An ordinary meal taken during your lunch break is not deductible unless you're traveling and cannot eat the meal within a reasonable distance of your tax home.
