Under current law, businesses may deduct 50% of the cost of business-related meals. The Consolidated Appropriations Act, 2021, (“CAA”) included a provision regarding the deductibility of business meal expenses to assist taxpayers impacted by COVID-19. The legislation adds an exception to the 50% limit for food or beverage expenses provided by a restaurant. Under the CAA, food and beverage expenses are now 100% deductible as relates to expenses paid or incurred between January 1, 2021 and December 31, 2022.
The IRS recently released Notice 2021-25 which provides guidance on what counts as a “restaurant” for purposes of the deduction.
Simply put, the term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.
Specifically excluded from this definition are businesses that primarily sell pre-packaged food or beverages that are not for immediate consumption, such as a grocery store, specialty food store, ABC store, drug store, convenience store, or a vending machine or kiosk. Generally speaking, the 50% limitation continues to apply to these business-related food or beverage expenses.
In addition, an employer may not treat the following as a restaurant in this context: (i) any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income, or (ii) any employer-operated eating facility treated as a de minimis fringe, even if it is operated by a third party under contract with the employer.
Once you feel comfortable returning to something resembling a normal routine of business development and networking, take advantage of this enhanced tax break by showing appreciation to your clients, referral sources, and prospective clients while at the same time supporting your local restaurant community.