Fully deduct business meals this year
The federal government is now subsidizing corporate meals. One of the COVID-19 relief laws doubles the typical deduction for 50% of the cost of business meals for 2022. As a result, you can take clients out for business meals or purchase take-out for your team and deduct the entire expense. That includes the tip, sales tax, and delivery fees.
The Consolidated Appropriations Act
The Tax Cuts and Jobs Act (TCJA) abolished the 50% deduction for business entertainment expenses incurred after 2017. Despite that, a company taxpayer can still deduct 50% of the cost of eligible business meals, including meals consumed when traveling away from home for work.
The Consolidated Appropriations Act temporarily doubled the business lunch deduction for 2021 and 2022 to support struggling eateries during the epidemic. However, this tax cut will expire on December 31, 2022, unless Congress decides to renew it.
The deduction for business meals is now allowed if:
- The expense is an ordinary and necessary business expense paid or incurred during the tax year in carrying on any trade or business
- The expense isn’t extravagant under the circumstances
- The taxpayer or an employee of the taxpayer is present when the restaurant provides the food or beverages
- A current or potential business customer, client, consultant, or similar business contact is the receiver of the food or drink
You must purchase food and beverages from the entertainment if supplied during an entertainment activity. Alternatively, on one or many bills, the cost can be listed independently from the cost of the entertainment.
So, if you treat a customer to a meal and the expense is appropriately documented, you may be eligible for a business meal deduction. As long as the meal has a commercial purpose or a reasonable expectation of a business benefit, that is.
Deduct business meals
IRS Notice 2021-25 explains the primary conditions for qualifying for the 100% deduction for food and beverages provided by a restaurant. Suppose the restaurant prepares and sells food or drinks to retail customers for immediate consumption on or off the premises. In that case, the deduction is available under this advice. As a result, it covers both on-site eating and take-out and delivery.
A “restaurant,” on the other hand, does not include a store that primarily offers pre-packaged foods not intended for immediate consumption. Therefore, exclusions of food and beverage sales from businesses are:
- Grocery stores
- Convenience stores
- Beer, wine, or liquor stores
- Vending machines or kiosks
The prohibition also applies to a dining establishment on the employer’s corporate premises that serves meals that are not taxable to the employee. A 50% deduction is allowed for business meals purchased at such locations. It makes no difference if a third party manages the facility under a contract with the company.
Keep good records
To maximize tax benefits for business meal expenses, keep track of your expenditures. It would be best if you made a note of:
- Cost of each expense
- Name and location of the establishment
- Business purpose
- Business relationship of the person(s) fed
In addition, request to split any entertainment costs from food or beverage charges. Contact our RRBB accountants and advisors for more details.
Get free tax planning and financial advice