Are you confused about what rules currently apply to meals and entertainment expenses?

I don’t blame you. 

The tax treatment of these business-related expenses has had shifting requirements over the last few years.

The Consolidated Appropriations Act(CAA), which became law at the end of last year, included a taxpayer-friendly change in these requirements.

The law stated that you can write off 100% of the cost of business-related food and drinks provided by restaurants in 2021 and 2022. 

If you remember, the usual deduction for meals is generally 50%.

Well, the “provided by restaurants” language raised a lot of questions.

Does this apply to both sit-down meals and take-out?

Do bars that provide food count?

Food trucks?

Thankfully, the IRS released guidance last Thursday. Here goes:

• “Restaurant” is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption.
• Sit-down, take-out, and delivery all apply for the 100% deduction.

Food purchased from a business that primarily sells prepackaged food or beverages does not qualify for the 100% deduction. This includes:

• Grocery stores
• Specialty food stores
• Liquor stores
• Drug stores
• Convenience stores
• Newsstands
• Vending machines or Kiosks

The 50% limitation continues to apply to any business-related expense for food or beverages acquired from these types of businesses.

Here are a few reminders about meal deductions in general. Deductible items include:

• Business meals shared with clients
• Meals bought for business travel
• Meals at conferences that aren’t included in the price of registration 
• Meals for employees having to work late
• Office snacks for the break room

Make sure to keep all receipts related to your meal expenses. It’s always a good idea to record the following information if it’s not included on a receipt:

• Date of the meal
• Total amount, including tax and tip
• Name of the restaurant
• Names of the people who attended the business meeting
• Details of the business purpose and details discussed

While this latest bill’s intent is to help the restaurant industry during the pandemic, it might also provide tax relief for businesses.

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