Go ahead, schedule that lunch meeting. Business meals are 100% deductible in 2021 and 2022.
The new policy comes as part of the Consolidated Appropriations Act, 2021 (CAA, 2021), a bill that combines the $900 billion COVID-19 stimulus package signed in December with a larger omnibus spending plan for the 2021 fiscal year.
In an effort to stimulate the struggling restaurant industry, the CAA allows businesses to deduct 100% of the cost of food and beverages provided by a restaurant.
The new policy, effective until the end of 2022, is a notable increase from the 50% meal deduction outlined in the Tax Cut and Jobs Act (TCJA) of 2017.
But you can’t just buy the office a few pizzas and expect a full deduction. Certain standards must be met for a meal to qualify.
Which Meals Qualify for the Deduction?
Aside from increasing the size of the deduction, the CAA does not change the TCJA’s rules for deducting business meals. In order to qualify as deductible:
- The expense must be both ordinary and necessary,
- The meal can’t be excessive or extravagant under the circumstances
- The meal must be provided by a restaurant
- The business owner, or one of their employees, must be present when the food or beverages are served
- The food or beverages must be provided to either the business owner, or to a “business associate” with whom you could reasonably expect to engage or deal in your business. A business associate could be a current or potential customer, client, employee, supplier, partner, agent, or professional advisor.
These rules disqualify any lavish spending in non-business situations. Stadium food at a sporting event isn’t likely deductible. Lunch with a potential business partner? That should work.
A little common sense should be enough to determine a meal’s deductibility. But some meals could be more difficult to categorize. For instance, what about a business meal taken during personal travel? The answer could be yes or no, depending on the context. If you’re unsure whether a meal qualifies as deductible, be sure to reach out to a tax professional for guidance, or you might be putting yourself at serious risk for a stressful IRS audit.
Contact Boxelder Consulting
Boxelder Consulting is ready to help your business maximize its deductions and save big this tax season. Our team of tax attorneys, accountants, bookkeepers, and business consultants are here to help you navigate any tax issue.
If you have any questions about deductions, expense accounting, or tax debt resolution, give us a call at 303-317-6111. Schedule your free consultation and start your comeback story today!