Are you confused about what rules currently apply to meals and entertainment expenses?
I don’t blame you.
The tax treatment of these business-related expenses has had shifting requirements over the last few years.
The Consolidated Appropriations Act(CAA), which became law at the end of last year, included a taxpayer-friendly change in these requirements.
The law stated that you can write off 100% of the cost of business-related food and drinks provided by restaurants in 2021 and 2022.
If you remember, the usual deduction for meals is generally 50%.
Well, the “provided by restaurants” language raised a lot of questions.
Does this apply to both sit-down meals and take-out?
Do bars that provide food count?
Thankfully, the IRS released guidance last Thursday. Here goes:
- “Restaurant” is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption.
- Sit-down, take-out, and delivery all apply for the 100% deduction.
Food purchased from a business that primarily sells prepackaged food or beverages does not qualify for the 100% deduction. This includes:
- Grocery stores
- Specialty food stores
- Liquor stores
- Drug stores
- Convenience stores
- Vending machines or Kiosks
The 50% limitation continues to apply to any business-related expense for food or beverages acquired from these types of businesses.
Here are a few reminders about meal deductions in general. Deductible items include:
- Business meals shared with clients
- Meals bought for business travel
- Meals at conferences that aren’t included in the price of registration
- Meals for employees having to work late
- Office snacks for the break room
Make sure to keep all receipts related to your meal expenses. It’s always a good idea to record the following information if it’s not included on a receipt:
- Date of the meal
- Total amount, including tax and tip
- Name of the restaurant
- Names of the people who attended the business meeting
- Details of the business purpose and details discussed
While this latest bill’s intent is to help the restaurant industry during the pandemic, it might also provide tax relief for businesses.
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