“Check, please!” Business Meals Tax Deduction Temporarily Changed to 100%

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Even the introverts started to complain that they missed going out during the pandemic. From professional events and work trips to client dinners and in-person staff lunches, small business owners missed more than socializing or hosting. They also so their food and beverage expenses, and therefore deductions, in 2020 shrink. 

2021 Meals Deduction Change

Historically, the IRS has only allowed a business to write off up to 50% of their annual expense for meals. But for the next year, small businesses have all the motivation they need to get back to spending on clients and staff. Because for 2021, the limit has been expanded to 100%. That’s right. Until the IRS turns off the temporary incentive, businesses can write off every penny they spend on qualified food and beverage expenses

Why the change?

It’s no secret that the restaurant and hospitality industry have been hit hard by COVID. According to the Wall Street Journal, four million restaurant and hotel workers have lost their jobs since February 2020. And by summer of 2020, according to Travel & Leisure, over 100,000 restaurants had closed. 

While news of the economic downturn is widespread and stimulus checks the subject of popular culture, what’s lesser understood is how Congress has been working to leverage tax laws, now and historically, to stimulate the economy. With this new incentive we can see how small businesses—who have line items for meals—are perfectly positioned to fuel the restaurant and hospitality industry. And it’s a win/win for business. The government wants to move money into a much needed sector and reward business owners for spending dollars where it counts: in support of local jobs and economies.

What qualifies as a meal deduction?

The 100% deduction is great news, but the standards for counting a meal as an expense remain the same. Here are the basics:

  • The business owner or employee is present.
  • The cost of the meal or beverages isn’t “lavish or extravagant.”
  • The meal is with a business contact (like a customer, employee, vendor, or consultant).
  • The meal has an “ordinary and necessary” business purpose.

You may also deduct meals when:

  • It’s an event to promote goodwill in the community, like sponsoring a community event (considered as advertising or marketing).
  • It’s an event that benefits a charitable organization. First make sure the organization meets the IRS requirements for a charity.
  • The meal is an essential part of your business function. For instance, food deductions are common when you’re a restaurant critic, must travel for work and therefore eat out, work as a food blogger, etc. 

What’s not deductible: 

As a small business owner, not every meal you eat is tax deductible. What’s not?

  • Traveling for personal reasons and deducting food/beverage 
  • Eating lunch at your desk or cafe while working on your laptop.

Spend Your Money & Cover Your Bases

To ensure that you can write off your food and beverage expenses, keep good records. The basics include simply doing the following: 

  • Keep the receipt. Make sure the place, date, and full amount—including tip—are visible.
  • Business purpose.Write these details onto the receipt.
  • Record individuals present at the meeting/event. Add these details to the receipt.

With more restaurants reopening and whispers of events tentatively planned, feel great knowing your qualified meal deductions are helping your business and your local economy. And don’t forget: taking your accountant out for drinks is completely allowable and 100% deductible in 2021. Cheers to your business and thriving local economy.

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Karen Ault, EA
Tax Consultant, Accountant, Quickbooks Pro Adviser

Karen is an Enrolled Agent (EA) which means she is authorized by the U.S. Dept. of Treasury to represent taxpayers, business entities, and estates before the IRS in tax preparation, audits, collections, and appeals. 

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