For the 2021 and 2022 tax years, many business meals are 100% deductible, up from 50% deductible in prior years.
There are some general IRS rules for when you can deduct a business meal:
- The expense is not lavish or extravagant under the circumstances;
- The taxpayer, or an employee of the taxpayer, is present at the furnishing of such food or beverages;
- The food or beverages are provided to the taxpayer or a business associate;
The big change for 2021 is that meals provided by ‘a restaurant’ are eligible for a 100% deduction if they would have been 50% deductible before.
This law change was part of the late 2020 stimulus bill and applies to business meals in 2021 and 2022.
Here’s a simple chart showing what Meals & Entertainment expenses are deductible at 100%, 50%, or not at all
|Employee lunches at the office provided by a restaurant||✓|
|Employee lunches at the office not provided by a restaurant (ex. Items purchased from a grocery store)||✓|
|Employee meals while traveling, provided by a restaurant||✓|
|Employee meals while traveling, not provided by a restaurant||✓|
|The entire cost of employee holiday parties, social activities, etc.||✓|
|Office snacks and refreshments for staff||✓|
|Office snacks and refreshments for “the public”||✓|
|Meals provided by a restaurant with business associates||✓|
|Meals not provided by a restaurant with business associates||✓|
|Food made free to the public, during a promotional event (ex. Realtor has an Open House)||✓|
|The direct cost of any type of entertainment with a business associate, including golf green fees, football tickets, hunting/fishing charters, “nightclubs”||✓|
|Food & Beverage purchased during an entertainment event, not specifically broken out on a receipt, but lumped in with the price of entertainment||✓|
|Food & Beverage purchased during an entertainment event if specifically broken out on a receipt||✓|
|Food & Beverage purchased during an entertainment event if specifically broken out on a receipt, and provided by a restaurant||✓|
As with all tax deductions, rules depend on your specific situation. Below are some additional definitions and Q&A to help you understand when meals are 100% deductible, or otherwise.
“Business Associate” definition:
any person the taxpayer could reasonably expect to engage or deal in the active conduct of the trade or business such as a customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective
What is considered a “Restaurant” for purposes of the 100% deductions?
Aside from the obvious, a restaurant, also includes getting to-go food from a restaurant, whether picking it up yourself or using a food delivery service (Waitr, UberEats, DoorDash, etc). Catering companies are also considered restaurants.
Meals with only the owner/taxpayer present:
You can write off a meal with just the owner present. However, it must fit under the “ordinary and necessary” business expense rule. Meaning, unless your job is a food blogger, you can’t write off your lunch every day just because you are eating it at your desk, unless you provide lunch to all employees every day. There’s a bit of judgment and reasonableness to use on this issue. For most business owners, the circumstances where lunch by yourself would be deductible might be something like while traveling, or away from your normal routine.
When is a meal considered “lavish or extravagant under the circumstances”?
Judgment must be used, as there are infinite “circumstances” possible. An example of a meal being too lavish might be, a $500 Ruth’s Chris dinner with a customer who only buys $400 worth of services from you. On the flip side, such a dinner might not be considered too lavish if there is a real potential to upsell this customer to $5,000/yr in sales.
Do you need to keep receipts for meals?
You are not required to maintain receipts for meals under $75. For amounts above that, the IRS may disallow your deduction if you do not have the receipt. Even if it’s under $75, you still need to retain notes of the meal’s business purpose, including the date, total amount, name of restaurant/place, attendees, and how it related to your business. Dext Prepare, formerly named Receipt Bank, is a great tool for maintaining receipts paperlessly.
When non-deductible “Entertainment” may be deductible:
Depending on what industry your business is in, something considered “entertainment” for most, could be considered a deductible business expense. The IRS gives an obvious example of the ticket price for attending a theatrical performance. This would not be deductible for most businesses. But if you are a ‘professional theater critic’ attending in a professional capacity, it would be deductible.
Are you a small business owner trying to understand how to take full advantage of these tax deductions? Contact Us to see how we can give you peace of mind.