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BUSINESS CAN NOW DEDUCT 100% OF MEALS!

That’s right. The government wants you taking clients out and supporting the restaurant industry. As usual, the federal income tax treatment of business-related meal and entertainment expenses has been a moving target. If you’re confused about what rules currently apply, I don’t blame you. But let’s try to clear some of the rules for 2021.

A 2020 COVID-19 relief bill made taxpayer-friendly changes

A taxpayer-friendly change in the CAA — the COVID-19 relief bill that became law late last year — allows you to write off 100% of the cost of businessrelated food and beverages provided by restaurants in 2021 and 2022. The “provided by” language apparently means the temporary 100% deduction rule applies equally to sit-down meals and take out. Before this change, deductions for business meals at restaurants were limited to only 50% of cost.

However, there are some unanswered questions: Do bars that serve food count as restaurants? Presumably they do. What about airport lounges? What about food trucks? Nobody knows. We await IRS guidance.

What’s considered a food and beverage cost

Food and beverages mean all food and beverage items, regardless of whether they are characterized as meals, snacks, or whatever. In turn, food and beverage costs mean the full cost of such items — including any sales tax, delivery fees, and tips.

Ryan Dodson has a Masters in Accounting from North Carolina State University. He worked in public accounting with Deloitte and Arthur Andersen. He and his wife Tiffany own and operate Liberty Tax Service.

405 East Dixie Drive•Asheboro, NC 27203 (336) 629-4700

Why you should insist on detailed receipts from entertainment venues

For purposes of the general disallowance of deductions for entertainment expenses, the term entertainment does not include food and beverages unless: (1) the food and beverages are provided in conjunction with an entertainment activity (for example, hotdogs and beers at a basketball game) and (2) the food and beverages costs are not separately stated.

So, to be deductible, food and beverages consumed in conjunction with an entertainment activity must: (1) be purchased separately from the entertainment or (2) be separately stated on a bill, invoice, or receipt that reflects the usual selling price for the food and beverages if they were purchased separately from the entertainment or the approximate reasonable value of the food and beverages if they were not purchased separately. Fair enough. Insist on detailed receipts from entertainment venues.

Exceptions to the rules about business meals

According to the IRS regulations, you can still generally deduct 50% of the cost of business-related meals, as was the case before the TCJA. As stated earlier, however, you can deduct 100% of the cost of business meals provided by restaurants in 2021-2022.

All that said, no deduction is allowed for business meals unless: 1. The expense is not lavish or extravagant under the circumstances (nobody knows what that means), and 2. The taxpayer or an employee of the taxpayer is present at the furnishing of the food and beverages, and 3. The food and beverages are provided to the taxpayer or a business associate.

Business associate means a person with whom you reasonably expect to deal with in the conduct of your business — such as an established or prospective customer, client, supplier, employee, agent, partner, or professional adviser.

Bottom line, you can deduct 100% of the cost if the business-related meal is provided to you by a restaurant in 2021-2022. So get out there and take some clients out to eat!

If you have any questions about the 100% meal deduction or any other tax question, please give us a call at 336-629-4700 or come visit us at 405 E. Dixie Drive in Asheboro.

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