In an effort to assist the restaurant industry, the Consolidated Appropriations Act of 2021 introduced a 100% business meal deduction. The new provision creates a temporary but meaningful tax incentive to spend more in restaurants. This means that business owners can write off meals and entertainment at full cost (formerly 50%) for the years 2021 and 2022.

What Qualifies as a Restaurant?

According to the guidance released by the IRS on April 8, 2021, the Notice 2021-25 defines a restaurant as 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 premises. This means takeout, delivery tips, fees and sales tax also qualify for the temporary 100% business meal deduction.

Can You Use The Meal Deduction At Entertainment Events?

Expenses related to business entertainment, amusement or recreation activities are no longer eligible for a 50% deduction starting 2018. Taxpayers may, however, still deduct business expenses related to food and beverages in conjunction with entertainment provided that (1) the food or beverages provided at or during an entertainment activity are purchased separately from the entertainment, or (2) the cost of the food or beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.

Takeaways

Business owners, big or small, are encouraged by the Congress through this temporary tax-incentive to spend on business meals and beverages to resuscitate the economy. So the next time you have a business meeting with a client or employee, 100% of the cost is now tax deductible. You’re not only helping your favorite restaurant survive these trying times, but also extending their lifeline so that they can continue serving their signature delicacies for years to come. So party on!

If you have any questions or inquiries, contact us today!