IRS Provides Guidance on 100 Percent Deduction for Business Meals

Businesses now have some additional guidance on the recent temporary deduction increase of their restaurant food and beverage expenses.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 temporarily increased deductions for business meals at restaurants from 50 percent to 100 percent for 2021 and 2022.

Businesses can claim 100 percent of their food or beverage expenses paid to a restaurant as long as the business owner or employee is present when the food/beverages are provided and the expense is not extravagant.

According to the guidance, a restaurant is a business that prepares and sells food or beverages to retail customers for immediate consumption. Food and beverages do not need to be consumed on the premises for the 100-percent deduction to apply.

The deduction does not apply to businesses that predominantly sell pre-packaged food or beverages that are intended for later consumption. This includes grocery stores and convenience stores, as well as vending machines and kiosks. Purchases from these businesses are still subject to the 50 percent deduction.

The IRS also clarified that an employer cannot treat employer-operated eating facilities as restaurants, even if they are operated by a third party under contract with the employer.

All other food and beverage expenses are still subject to the 50 percent deduction limitation.

For more guidance on this temporary full deduction, contact your Weiss tax professional.