Temporary 100% Business Meal Deduction Stimulates Restaurants, Provides Savings to Businesses

In an effort to stimulate spending in an industry that was largely affected by the COVID pandemic, the Consolidated Appropriations Act introduced a 100-percent deduction for business meals purchased at restaurants if certain conditions are met. In April 2021 the IRS issued Notice 2021-25 which provides guidance on when the increased deduction applies.

The temporary 100-percent deduction only applies for expenses that are paid or incurred after December 31, 2020 and before January 1, 2023 for food or beverages provided by a “restaurant”. For purposes of the temporary 100% deduction, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. Similar to 50% deductible business meals, the taxpayer or an employee of the taxpayer must be present at the meal, a bona fide business discussion must take place, and “lavish and extravagant” expenses under the circumstances should not be included.

Expenses paid at businesses that primarily sells pre-packaged food or beverages which are not for immediate consumption are excluded from the temporary 100% deduction. Notice 2021-25 specifically states examples of businesses that would not qualify as a “restaurant”, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. Food and beverage expenses paid at businesses that are not qualifying as a “restaurant” will continue to be limited to a 50% business deduction.
In addition, employers may not treat any eating facility located on the business premises of the employer, such as cafeterias, even if the facility is operated by a third party under contract with the employer.

The business meal deduction gives business owners an additional element of savings. For taxpayers, it will be important to accurately document where food and beverages were purchased in order to help determine whether the expenses qualify for the temporary 100% business deduction. The experts at Maner Costerisan can help you determine if your meal deductions qualify for the larger deduction, and how it fits into your tax savings strategy.

Written by Brad Sinicki, Tax Associate, Maner Costerisan