The tax deductibility of some meals and entertainment can be exciting when starting a business, but it varies from situation to situation.
The Consolidated Appropriations Act changed how tax-deductible pricey steak dinners are for the 2021 and 2022 tax years.
Deduct 100% of Business Meals in 2022
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) allows businesses to write off their meal expenses in 2021 and 2022.
Thanks to the TCDTRA, starting on January 1, 2021, and continuing through the end of the year, you can now deduct 100 percent of the expense of business-related food and beverages. This change supports the restaurant industry by excluding grab-and-go food.
The IRS says that meals are only deductible when they are not lavish.
There are specific parameters around what qualifies as a tax-deductible business meal. You need to be present with the client and shouldn’t expect this deduction to extend to any family or friends you invite to the meal.
To claim the 100 percent deduction for business related-meals at restaurants this year, you need to meet the following qualifying criteria:
- It needs to be at a restaurant that is not run by your business
- You need to be present at the time of the meal
- The meal cannot be overly lavish
The 100 percent deduction is exactly what it sounds like: a deduction for all your qualified business meal expenses, which means it covers both food and beverages and sales tax and tips.
Maximizing your meal deductions in 2021:
While the IRS has extended the 100 percent deduction to food purchased at restaurants for business purposes, they have yet to issue guidance on what constitutes a restaurant. We know convenience stores don’t count; there are some gray areas here. Does the IRS classify food carts/trucks as restaurants? What about bars and airport lounges?
According to the IRS, to be safe, choose locations for client or prospect meetings that are definitively restaurants.
Claiming this deduction is critical to ensure you get an itemized receipt and file it somewhere safe. As you save the receipt, note how much you left as a tip since that amount can be included in your deduction.
This year presents an opportunity to reduce your income tax liability with proactive tax strategies.
That’s where we come in…
We can help you make the most of your write-offs in 2022. Let’s discuss it!