Since 1986, lawmakers have limited business meal deductions: first to 80 percent and 50 percent (unless an exception applies).
But on December 27, 2020, 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 you with the food or beverages.
How Can You Deduct Business Meals?
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 delivered by Uber Eats or Grubhub.
Your deductible business meals must be ordinary and necessary business expenses, and they must not be subject to disallowance.
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. The active conduct of your business is 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 consumes 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 restaurant creates a 100 percent deduction, allowing for completely deductible business meals.
For more specialized information tailored to you and more, contact us at Palma Financial. With over 20 years of experience, we have the knowledge and expertise to guide you in all parts of your financial journey. Contact us by phone or online or schedule your initial consultation here. We look forward to serving you!