Taxpayers may only deduct 50% of the cost of food and beverages. The 2021 tax bill removed some of the limitations for expenses incurred in 2021 and 2022. In this episode, we talk about the IRS recently coming out with its clarification.
My guess is that this ends up being more complicated that you would think.
- They did, since they seemed to limit the 100% deduction to restaurants only.
- And as we know there are a lot of other sources for food and beverage.
So what did they end up saying?
- It looks like they limited the deduction for a restaurant that prepares and sells food or beverage to retail customers for immediate consumption on the business premises.
- They later clarified this to say that a to-go order or a drive through appears to qualify.
- Also a place that sells food on a take-out basis or a food truck should qualify.
- So you don’t have to eat inside the restaurant.
What doesn’t it include?
- It does not include a business that primarily sells pre-packaged foods not intended for immediate consumption.
- Examples of this would be grocery stores, convenience stores and liquor stores.
- It also does not include vending machines or kiosks.
In know many businesses use a meal per-diem. Is that 100% deductible?
- As a quick refresher, a number of years ago the IRS made it easier to reimburse an employee for meals expense.
- Rather than have the employee submit a bunch of receipts, they are allowed to get reimbursed a set amount per day. This amount is different depending on what city you are in.
- Getting back to your question….since the per-diem can be used for restaurant and non-restaurant meals, it appears that the 100% does not apply to this type of reimbursement.
What needs to be done in this case?
- It looks like employees will need to keep their receipts to use the 100% deductibility benefit.
- This could be an administrative headache for employers since they would need to accumulate and keep all these receipts.
Are there other meals expenses that can be 100% deductible?
- Yes, prior to this law and now, a business can deduct 100% of the business meals if it is a
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- Companywide holiday or other party
- Food or drinks provided free of charge for the public
- Food that is included in taxable wages of an employee.
Did these rules make any changes to entertainment expenses?
- They did not. Entertainment expenses are still not deductible.
- But if there is a separate meals component, those meals expenses would apply.
- If there is just one bill that does not separate the bill, then it becomes difficult to deduct any meals portion.
Be sure to talk to a tax professional if you have any questions or would like further assistance.
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
