The recent and continuing COVID-19 pandemic has wreaked havoc on many of our local restaurant businesses. The mandated closures and required remodeling to bring customers back into a safe environment has proven to be very difficult for many in the food service industry.

The Tax Certainty and Disaster Tax Relief Act of 2021 has given incentive to support our local restaurants while conducting business. The Act added I.R.C. Section 274(n)(2)(D) allowing a 100% deduction for food and beverages provided by a restaurant after December 31, 2020, and before January 1, 2023. Yes, 100% deductible meals!

All the other rules that we have known for years stay the same, specifically: a deduction is allowed for any business meals if (1) the expense is not lavish or extravagant under the circumstances; (2) the taxpayer (or employee of the taxpayer) is present at the furnishing of the food or beverage; and (3) the food or beverages are provided to the taxpayer or business associate. Absent the special 2 year provision, the allowable deduction would be 50% of the total expense. Food and beverage expense includes the cost of the food & beverage, including any delivery fees, tips, and sales tax.

There are a few exceptions from the 50% rule where the deduction is not limited such as Holiday parties, picnics, summer outings, or other events when provided for all employees.

If the activity includes only highly compensated employees, officers, shareholders, or 10% + owners then the exception does not apply. Worksite meals for the benefit of the employer can also fall under the exception of the 50% limitation.

So it is time to bring life back to normal following this pandemic. Invite your business associates out to lunch or dinner to engage in meaningful business discussions. Support your local restaurants and reignite the social relationships with business colleagues that were hindered during the pandemic. You can also order take-out and have the meeting at your business location as long as the preparation took place at the restaurant. Zoom meetings are good but with a 100% deduction for 2021 & 2022, I highly recommend a meeting face to face at your favorite restaurant.

Remember when you do invite your business associates out for a meal and business discussion, be sure to document who, what, why, where, and when to satisfy the requirements for the deduction. Your receipt should already have what, when, and where so just jot down who you were with and what was the business discussion. Attach a meeting agenda to the receipt in your file if you have one.

Entertainment, however, continues to be nondeductible but if the portion of the cost related to a meal during the entertainment is broken out on the invoice you can deduct that portion.

So enjoy the holidays, have a 100% deductible party with your employees, and take your business associates (including your CPA/accountant) out for lunch or dinner as much as possible from now till the end of 2022.

Feel free to contact us at HintonBurdick if you have any questions about the deductibility of meals or other tax planning questions.