The deductibility of meal and entertainment expenses for business purposes changed, temporarily, as part of the Consolidated Appropriations Act (CAA). Certain food and beverages expenses incurred during the 2022 calendar year will be 100% deductible if purchased from a qualifying restaurant. Under Notice 2021-25, the IRS defines qualifying restaurants as businesses that prepare and serve food and drinks for immediate consumption, whether on or off-premises. Food and beverage costs include the full cost of a meal or snack as well as any sales tax, delivery fees, and tips.
This is a temporary, 100% deduction made available by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, a division of the CAA. The deduction only relates to expenses paid or incurred, for food or beverages supplied by a restaurant, after December 31, 2020 and before January 1, 2023. The business owner (or employee) must be present at the time or purchase, and the expense may not be lavish or extravagant. The expense may be used to provide meals to a current or potential business customer, client, consultant, or similar business contact.
There are a few exceptions to the 100% meal business expense deduction regulations that remain in place.
Certain meal expenses continue to be only 50% deductible, including:
- Food and beverages not for immediate consumption, including those products purchased from grocery, specialty food, beer, wine, or liquor stores, pharmacies, drug stores, convenience stores, newsstands, vending machines, or kiosks.
- Meals provided at eating facilities located on the employer’s business premises, which are used to furnish meals (i.e., refrigerator, mini fridge, vending machine, onsite cafeteria), even if such eating facility is operated by a third party under contract with the employer.
- Entertainment-related meals, if stated separately from the cost of the entertainment.
Entertainment-related expenses continue to be excluded, which is anything considered to constitute entertainment, amusement, or recreation is nondeductible, including the cost of facilities used in connection with these activities.
See chart below for examples of allowable deductions.
Beginning January 1, 2023, the final regulations on deductions for meals and entertainment will revert to the tax rules under the Tax Cuts and Jobs Act.
Author, Dov Neuhaus, CPA
Senior Tax Manager
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.