You may already be aware that the Business Meals deduction for income taxes, which used to be known as the “Meals & Entertainment Deduction,” has been picked away over the years, much to the chagrin of US businesses and their employees. But did you know that last year, lawmakers relented at the “last minute” (December 27th) to provide indirect relief for ailing restaurants?
For tax years 2021 and 2022, there is a temporary 100% business meals deduction! Let’s get into the details.
Business Meal Deduction 2021: How To Get a 100% Deduction
To qualify for a 100% deduction, meals must be provided by a restaurant. If you’re concerned about catching COVID while dining in, you can rest assured that delivered meals also count. Whether your preference is Uber Eats, Grubhub, DoorDash, or a local delivery company, you can still deduct 100% of the meal’s cost. It’s exciting enough to make you want to high-five the delivery driver, though we don’t recommend that due to COVID.
A restaurant by the definition of the IRS (which is the definition that counts here) is a business that “prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” We think this is amazing news, because that means that taco trucks count. Nice!
Note that you can’t just deduct any old restaurant meal: it has to be a reasonable, ordinary, and necessary business expense. Make sure it’s all three!
Furthermore, you must be there for the meal. You can’t just huck a to-go bag at your business contact like that kid in the old-school Paperboy arcade game. Also, as you can see implied here, you have to be eating the meal with someone you could reasonably expect to do business with, whether they be someone you pay (supplier, employee, or advisor) or someone who pays you (customer or client). Don’t worry; you don’t have to successfully woo a client in order for the meal to be deductible.
Business Meal Deduction 2021: How to (at Least) Get The 50% Deduction
If you are not getting food from a restaurant, the best you can hope for is the 50% deduction, which is better than nothing. Here are the kinds of non-restaurant establishments from which you can expect to get at least a 50% tax deduction:
- Grocery stores
- Specialty food stores
- Beer, wine, or liquor stores
- Drug stores
- Convenience stores
- Vending machines or kiosks
As long as the expense is reasonable, ordinary, and necessary, you’re (generally speaking) good to go on the expense. Lest we ever accuse lawmakers of being the “fun police,” yes, you can deduct alcohol expenses. In vino veritas!
We mentioned at the beginning of the article that the “Business Meals Deduction” used to be called the “Meals & Entertainment Deduction.” This deduction was discussed so often that it even got shortened to “M&E.” Well, the 2018 Tax Cuts and Jobs Act (TCJA) ended the ability to deduct entertainment expenses, so you could say that lawmakers were being the “fun police” there.
If it’s any consolation, you can still deduct the hot dogs and beer if you take a client to a baseball game, and those are some expensive snacks!
TL;DR: For 2021 and 2022, you can deduct 100% of business meals expenses from restaurants only. You don’t have to eat at the restaurant; on the contrary, you can deduct the expense even if the restaurant has no seating. You do have to eat the meal with a business contact of some sort, and the expense has to be reasonable, ordinary, and necessary to the operations of your business. If you’re getting food or drink from somewhere that’s not a restaurant, you can generally deduct 50% of the expense. Sadly, the income tax deduction for entertainment expenses was legislated into oblivion in 2018.