Tax Services • Published 2/08/2022 An Update to the Meal Expense Deduction
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Although eating is a daily routine, certain meals can also provide a larger tax deduction for your business. For example, 50% of the cost of a business meal was deductible in 2020. Then, in an effort to help restaurants impacted by the pandemic, Congress passed a new law at the end of 2020 that temporarily made certain business meals 100% deductible for 2021 and 2022. See the chart below for an outline of the changes:

 

2020

2021 - 2022

Expenses for meals during employee travel, including per diem

50%

100%

Company holiday party or picnic for employees[1]

100%

100%

Business lunches/dinners

50%

100%

Meals at seminars/conferences

50%

100%

Food and drink associated with networking events

50%

100%

Dinner provided from a restaurant for employees working late

50%

100%

What qualifies for the 100% meal expense deduction?

Under the new rules, “restaurant meals only” are fully deductible for 2021 and 2022. The IRS has issued additional guidance on what is considered “restaurant meals only” for this increased deduction. To receive the increased 100% deduction, the meals must be purchased from a restaurant, whether the meal takes place at a restaurant or was picked up or delivered.

What doesn’t qualify for this deduction?

Meals that are cooked on the business premises, items considered “ready-to-go,” and pre-packaged meals do not qualify for the 100% deduction. Below are a few examples of establishments with “ready-to-go meals” that are not eligible for the 100% deduction:

  • Grocery stores
  • Convenience stores
  • Liquor stores
  • Vending machines

How to record meal expense deductions on your books:

Stay organized by separating your meals in your chart of accounts. Create distinct accounts for:

  • Meals – 50%
  • Meals – 100%

How to get the 100% meal expense deduction:

Go out to eat! Take a client out to lunch, treat your employees to a meal, or take a prospective customer to dinner. Enjoy the increased deduction while also helping revitalize a restaurant industry that has been significantly affected by the COVID-19 pandemic.

With the above tips in mind, contact your P&N tax advisor to learn more about the new changes to meal expenses for 2021 and 2022 and how the update may impact your tax obligations.

 

[1] Must include employees and cannot be exclusive to highly-compensated employees or owners.

 

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