As an intended relief measure for restaurants hard-hit by the COVID-19 pandemic, Congress temporarily increased the deductibility cap for qualified business meals from 50% to 100% for 2021 and 2022. This includes the full cost of food and beverages, as well as any delivery fees, tips, and sales tax. Importantly, though, only meals provided by a restaurant---an undefined term in the Internal Revenue Code---qualify for the 100% deduction; all other meals remain subject to the 50% cap.
For the next two years, businesses may fully deduct food and beverage costs provided by a restaurant so long as the following conditions are satisfied:
The meal was an ordinary and necessary expense in carrying on your trade or business;
An ordinary expense is one that is common and accepted in your trade or business.
A necessary expense is one that is helpful and appropriate for your business.
The expense was not lavish or extravagant under the circumstances;
Either you or your employee was physically present during the meal;
The meal was provided to a current or potential business customer, client, consultant, or similar business contact; and
In the case of food or beverages provided during or at an entertainment event, the food and beverages were purchased separately from the entertainment, or alternatively, the cost of the food and beverages was stated separately from the cost of entertainment on one or more bills, invoices, or receipts.
The IRS requires that you keep adequate records to substantiate each expense reported on your tax return, including business meal expenses. Adequate records generally consist of some form of documentary evidence, such as receipts, cancelled checks, bills, or invoices. For business meals, a receipt from the restaurant will suffice as documentary evidence so long as the receipt contains the following information:
The name and location of the restaurant;
The number of people served (if the receipt does not contain the number of people served, be sure to log this information in your books and records); and
The date and amount of the expenses.
Note, if there is a charge for something other than food or beverages, the receipt must clearly indicate the non-qualifying charge. The best practice, though, is to ask the restaurant to split the food and beverages charges on one receipt and all other charges on a separate receipt.
Exception for expenses under $75:
Documentary evidence is not required for expenses under $75, but it is highly recommended that you nevertheless keep and maintain receipts for these expenses or accurately track them on your books and records.
Sally owns a consulting firm. She invites a prospective client to dinner at a local restaurant. Sally orders an appetizer, two entrees, and drinks for her and the prospective client. Once finished, Sally pays the bill and keeps a receipt for her records. Sally can fully deduct the food and beverage expenses she incurred at dinner.
For more information, see the following resources:
IRS Notice 2018-76; and
The Taxpayer Certainty and Disaster Relief Act of 2020.
About the Author
Attorney Jordan D. Howlette is the President of MyTaxRights, LLC and the managing-member of JD Howlette Law, LLC, a civil litigation firm that represents individuals and businesses involved in tax disputes with the IRS, the United States Department of Justice (DOJ), and various state departments of revenue. A former trial attorney with the DOJ’s Tax Division, Jordan leverages his extensive background in tax litigation to educate others about their federal tax rights and responsibilities. Each tax season, Jordan also volunteers as a tax coach with the Center for the Advancement of Tax Equity, where he teaches others how to self-prepare and file their taxes through the non-profit's free tax clinics.