Increased Business Meal Deductions for 2021 and 2022

With increased business meal deductions for 2021 and 2022, the business lunch is back! If you recall, the Tax Cuts and Jobs Act (TCJA) eliminated the business-related deduction for entertainment, amusement or recreation expenses. However, it retained a deduction for business meals when the expense is ordinary and not extravagant. Especially when a business meal is necessary for carrying on the trade or business. Additional requirements for the business meal deduction are below.

Under TCJA, the business meal deduction continues to be 50% of the actual expense. Also remember to document all business meals. This means to include the amount, business purpose, date, time and place of the meal. Also include the names of the guests and their business relationship with you.

Great News! For 2021 and 2022 only, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows businesses to deduct 100% of business meal expenses under the following circumstances.

Increased business meal deductions for 2021 and 2022 allowed under these circumstances:

• The food or beverages must be provided by a restaurant. The use of the word “by” shows that the new rule isn’t limited to meals eaten on site. Restaurant takeout and delivered meals are also fully deductible. 
  
• The expense is an ordinary and necessary expense. And this expense must be while carrying on any trade or business.* Also the expense must be paid during the taxable year.
  
• The expense is not lavish or extravagant under the circumstances.* 
  
• The taxpayer or their employee is present at the furnishing of the food or beverages.* 
  
• The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact.* 

The IRS explains it this way. To be deductible, food/beverages must be provided to; A “person with whom the taxpayer could reasonably expect to engage in the active conduct of the taxpayer’s trade or business. This would include a taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”

Rules when meals are provided at entertainment locations

There are different rules when food or beverages are at an entertainment facility. For these locations, food and beverage must be documented separately from the entertainment. This is because entertainment is not deductible. Also, if you expect 100% deductibility of your meal, be sure to understand what the IRS regulations define as ‘a restaurant’.

*Meals and beverages can be deductible when not provided by a restaurant. However, the deduction is only 50% of the expense; if otherwise meeting the qualifications of a business meal.

If you have questions about how this 100% meal deduction might apply to your business, please give this office a call at 360-778-2901.