The IRS has
made many changes to tax laws regarding meal and entertainment deductions for businesses.
These changes have created a great deal of confusion when determining what
types of meals and what percentage of meals are deductible.
large change to meal and entertainment deductions began in 2017 with the Tax
Cuts and Job Act. This act eliminated almost all deductions for entertainment
expenses that incurred after 2017.
recent act, the Consolidated Appropriations Act, created temporary rules for
meal deductions. This act was passed in 2020 and increased some meal deductions
to 100% for expenses paid or incurred in 2021 and 2022. Prior to the
Consolidated Appropriations Act, meals were typically 50% deductible.
For a meal
to be 100% deductible in 2021 and 2022, the food must be from a restaurant and
either the taxpayer or at least one of the taxpayer’s employees must be present.
Although the meal must be from a restaurant, the meal does not need to be consumed
at the restaurant. Meal expenses from restaurants include additional charges
for takeout, delivery tips, and other related fees. Businesses that primarily
sell pre-packages foods, such as grocery stores and convenience stores, are not
considered restaurants and are not 100% deductible. Additionally, the meals
must be ordinary and necessary; they cannot be extravagant or luxurious.
Below are some
common examples of meals that are always 100% deductible:
that are provided at companywide events such as holiday parties.
provided to the public for free.
provided to employees that are included on the employees’ W-2s as taxable
business that sell food, the meals that are provided to their employees for
free when the employee is not working.
These are a
few meals that are typically 50% deductible but will temporarily be 100%
deductible in 2021 and 2022 when the meal is provided by a restaurant:
provided to employees at business meetings.
provided to employees for the benefit of the employer. This includes meals
provided for employees working late, working through their break, or coming to
work on a day off.
during travel that is related to existing business.
that are shared with clients or prospective clients.
provided at an entertainment event if the meals are purchased independently
from the entertainment and have a separate invoice or receipt.
Meals that are
still 50% deductible even in 2020 and 2021:
and coffee that are provided to employees in the office.
provided to employees that are not from a restaurant.
entertainment that are nondeductible:
provided at entertainment events that are not separate from the cost of the
entertainment and that do not have separate invoices or receipts.
for sporting events.
for clients if the taxpayer or one of the taxpayer’s employees is not present
for the meal.