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What Qualifies for the 100% Business Meal Deduction?

May 17, 2022

Taking a client out to lunch? You can write off 100% of the cost if it’s business related. What are the rules? We dive in here.

*Editor’s Note: This blog has been updated as of May 17, 2022 for accuracy and comprehensiveness.

Under the Consolidated Appropriations Act (CAA) the full costs of meals provided by a restaurant that have a business purpose are 100% deductible. Here are the details.

What is the meals and entertainment tax deduction?

It’s no secret that sometimes the best business deals and conversations happen over lunch, during a round of golf, or on the sidelines of a football game. When it comes to deducting these expenses, the IRS wants to know that business was actually talked about and you weren’t simply enjoying a meal with an employee or client.

Prior to the new rules, the deduction was limited to the following

100% deduction

  • Meal expenses primarily for the benefit of all employees
  • Food and beverages provided to the public to generate business

50% deduction

  • Meals provided to employees for the convenience of the employer
  • Meals with a business purpose
  • Travel meals
  • De minimis food and beverages

What meals qualify for the 100% deduction?

Thanks to a 2021 ruling, for the years 2021 and 2022 there is a full deduction for the cost of food or beverages provided by a restaurant. In general, any of the meals that would have previously fallen under the 50% deduction are now fully deductible if they were paid or incurred after December 31, 2020 and before January 1, 2023.

What are the rules?

Generally for meals to be deductible the business owner or an employee of the business must be present when the food or beverages are provided and the expenses are not considered lavish or extravagant under the circumstances.

To deduct the cost of meals under this provision, they must be provided by a restaurant. Per IRS Notice 2021-25, restaurants for this purpose do not include businesses that sell pre-packaged goods such as grocery and convenience stores, specialty food stores, beer, wine or liquor stores, drug stores, newsstands, vending machines or kiosks. Additionally, employers are not allowed to treat certain employer-operated eating facilities as restaurants.

Notice 2021-25 also clarified that meals from restaurants can be consumed either on-premises or off-premises, which means take-out and catering services would be eligible.

What will change in 2023?

Meals eligible for the 100% deduction in 2022 will revert back to being 50% deductible in 2023.

Questions? Contact us.

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