Feb 11, 2021Qualifying for 100% Tax Deductible Meal Expenses
In December, the federal government agreed on a second stimulus package to aid struggling businesses. Among additional direct payments and grants, new provisions were added to encourage businesses to support local restaurants.
Despite the federal government pumping funds into the economy with the first stimulus checks, restaurants hadn’t received much relief. However, this new stimulus bill is designed to give restaurants a much needed boost. Take a look at the major change that benefits restaurants:
Prior to the new bill, companies were allowed to claim business meals as a deductible expense on their taxes, but only up to 50% of the costs in that category.
The new bill increases the deductible meal expense amount to 100% of total costs for ordinary and necessary food and beverage expenses that are paid or incurred in calendar years 2021 and 2022.
Better yet, the bill uses the language “by” restaurants and not “in” restaurants, clarifying that carryout and delivery options are also deductible.
The primary goal of this adjustment is to encourage more companies to support local restaurants by offering a more generous tax incentive. Whether you’re a restaurant or not, your business can still benefit from this adjustment to meal deductions with the new stimulus bill.
How do I claim these benefits?
The overall process is pretty simple with only a handful of caveats. Here’s what’s required:
- The expense must be “ordinary and necessary.”Meals shouldn’t be lavish or extravagant under the circumstances.
- The expense must directly relate or associate with your business. Meeting with a prospective client over lunch is directly related to your business, but ordering pizza on a Friday night when business activities are only discussed for five minutes probably isn't.
- You or one of your employees must be present when the meal or beverages are served. For example, ordering a carryout meal for a client in another state wouldn’t be considered a deductible expense.
- Meal expenses must be separated from other expenses. If meals are served in conjunction with an entertainment activity (such as a play or sporting event), the tickets and meals must either be purchased separately or their cost must be stated on a separate bill, statement, or invoice. Entertainment expenses are still non-deductible for tax purposes.
If you’re familiar with the process, you’ll notice that the requirements for claiming these deductions are identical to the previous requirements.
So whether or not your team considers themselves true foodies, head to your favorite local restaurant guilt-free in the next two years and your business will receive some generous tax benefits. Happy eating!