Changes to Meal Expense Deduction
When the Consolidated Appropriations Act was passed on December 27, 2020 everyone’s focus was on the additional stimulus payment and the extension of many of the credits which had been included in the CARES Act. One provision seems to have gone under the radar, but it affects many who incur expenses for business meals.
I have written about the meal and entertainment deduction in the past. The change in the law affects only business meal expenses and not entertainment expenses. The change is temporary in nature. If all requirements are satisfied, the meal expense is not subject to the 50% limitation, but may be deducted in full. In order to get the 100% deduction, you must satisfy the following requirements:
- The meal expense must meet the requirements for deductibility. See paragraph 7 of my previous post. https://magdaabdogomezlaw.com/meal-entertainment-deduction/
- The expense must have been paid or incurred after December 31, 2020 and before January 1, 2023.
- The expense must have been incurred in a restaurant.
The IRS has just issued guidance on what is required to satisfy the third requirement. The IRS has defined a restaurant as a “business that sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business premises”. A 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 vending machine”. Additionally, a restaurant does not include an employer-operated eating facility even if the facility is operated by a third party under contract with the employer. For additional information refer to https://www.irs.gov/pub/irs-drop/n-21-25.pdf
As the number of those vaccinated, and confidence in venturing out to restaurants for conducting business increases, it is great to know that the meal will be fully deductible. For those who want to remain cautious a little longer, the restaurant meal can be ordered into the office and it would still qualify for the 100% deduction, assuming there is a business purpose for the meal.