Get a 100% deduction for Business Meals
Many business owners have not heard about recent changes in the laws regarding business meals and entertainment. There’s bad news and good news.
Here’s the bad news: The Tax Cuts and Jobs Act made any entertainment expenses non-deductible beginning with the calendar year 2018. (I know, we accountants still like to call it “meals and entertainment”, but it’s not.) Here are a couple of examples of how this works:
- Bill buys tickets for he and a client to go to a golf outing, which includes a nice dinner afterward. Since the price of the meal was not listed separately from the golf on the invoice, it is all considered entertainment and none of it is deductible.
- Jenna has an extra ticket to a football game. She invites a client, and after the game, she takes the client to a trendy restaurant for dinner. Because the food was purchased separately, it is deductible, subject to applicable limitations on meals (normally 50% deductible.)
Now here’s the good news: The Consolidated Appropriations Act of 2021 provides a 100% deduction for 2021 and 2022 for business meals purchased from a restaurant. This includes any establishment where the food is sold to consume on the premises, whether or not it actually is consumed on the premises. Here’s an example:
Every year, Barbara holds an annual update for the key employees of her most important client. Each year she normally goes to the grocery store and gets trays of sandwiches, fruit and veggies. This would still be 50% deductible as a business meal. However, this year, Barbara is aware of the special temporary 100% deduction rules, so she orders sandwiches from a local restaurant instead. The fact the restaurant has the ability for customers to eat on the premises makes her expense 100% deductible instead of the normal 50%.
How do you get this deduction? You will need to keep track of these meals separately from other meals. You may want to have two accounts or categories on your books. One for 50% deductible meals and another for 100% deductible meals.
Other rules pertaining to business meals:
Food or beverage expenses incurred primarily in conjunction with employee activities is 100% deductible. Think Christmas party! However, the event can’t discriminate in favor of highly compensated employees.
However, drinks and snacks in the break room are only 50% deductible because the IRS has determined that what goes on in the break room is not a “social activity”.
Any expenses treated as compensation to an employee and included in the employee’s W2 are 100% deductible.
Advertising Expenses may include food or beverages provided to the general public either as advertising or just to promote goodwill and are 100% deductible.