IRS Allows Temporary Increase in Food Tax Deductions to Support the Restaurant Industry
In an effort to support the restaurant industry struggling through the pandemic, the Consolidated Appropriations Act (CAA) was enacted December 27, 2020, includes temporary changes to food and beverage deductions allowed in 2021 and 2022.
Consolidated Appropriations Act of 2021
The temporary tax incentives outlined in the CAA are an effort to encourage businesses to spend in restaurants and support the struggling industry.
For 2021 and 2022 only, business meals from restaurants are now 100% tax deductible. Before the CAA, food and beverages provided by restaurants were 50% deductible for business, and the CAA increases that to 100% for the next two years.
What Food is Allowed for Deductions?
Here is a summary of the food and meals deductions allowed.
100% Deductible in 2021 and 2022
100% Deductible: Food and beverages provided at company-wide events – party, holiday party, picnic, team-building event, etc. This deduction is allowed only for events for the entire staff, not for events including only highly compensated employees. It also does not apply to independent contractors.
100% Deductible: Meals given in the office during meetings with employees, stockholders, or directors. (Food for board meetings are 50% deductible as noted below.)
100% Deductible: Food and drinks given free-of-charge to the public (usually during a promotional effort). If the event is invitation-only, the food is not available to the general public; therefore, the 100% deduction is not applicable.
100% Deductible: Food and meals that are taxable compensation and included on a W-2 for employees or independent contractors.
100% Deductible: Meals provided for the convenience of the employer such as dinner for employees working late in the office or food available in the break room to those on call are allowed.
50% Deductible: Treating clients to lunch or a meal where work is discussed and the meal isn’t lavish.
50% Deductible: Having dinner with a client in a restaurant is 50% deductible, but the meal costs for an additional spouse or friend is not deductible.
50% Deductible: Snacks and food, such as the break room water, coffee, and coffee condiments provided in the office.
50% Deductible: For meals to less than half of employees, those meals are allowed a 50% deduction. (If the meal is for half of all the company employees or more, then it is a 100% deduction.)
50% Deductible: Meals and food provided for board meetings
50% Deductible: Employee meals while traveling (the IRS definition of travel for work).
50% Deductible: Meals at a conference with a separate charge from the ticket cost
Not Deductible: Entertaining expenses and meals included in the ticket price or event cost are not deductible. (Meals during the event that are on a separate invoice or receipt are 50% deductible.)
Not Deductible: Extravagant or lavish meals.
Self-Employed / Freelance / Independent Contractor
The same deductions apply to a self-employed individual as applies to a business or company.
To be noted, while meals during meetings including employees is 100% tax deductible, self-employed individuals eating lunch alone at his or her desk is not deductible.
Also, there is a difference between providing office food, snacks, and coffee to yourself versus to clients. Personal food is not deductible.
Keep an Organized Record of Food and Meals Expenses
It is a good practice for employers to create separate general ledger accounts to keep a separate record of different meals and entertainment. Keeping an organized record of categories of food and meal expenses will help during tax time.
Contact us if you would like to discuss possible tax deductions for your business.