To provide additional economic relief to the restaurant industry caused by the coronavirus (COVID-19) pandemic, Congress included a provision in the Consolidated Appropriations Act (CAA, 2021) that removes the 50% limit on business meal deductions during 2021 and 2022. Business related meals provided by restaurants, included those served by takeout or delivery, are fully deductible for the next two years.
The Tax Cuts and Jobs Act of 2017 changed the deductibility of business meals and client entertainment in the following ways:
|2017 Expenses |
|Office Parties||100% Deductible||100% Deductible|
|Client Entertainment||50% Deductible||No Deduction|
|Employee Travel Meals||50% Deductible||50% Deductible|
|Meals Provided for |
Convenience of Employer
|100% Deductible||50% Deductible |
(Nondeductible after 2025)
The new legislation provides an exception to the 50% limits imposed by the Tax Cuts and Jobs Act involving expenses for food or beverages provided by a restaurant. This rule only applies to expenses paid or incurred in calendar years 2021 and 2022. Expenses paid or incurred in calendar year 2020 are not eligible for the exception.
The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule is not limited to meals eaten on the restaurant’s premises. Takeout and delivery meals provided by a restaurant are also fully deductible.
It is important to note that, other than lifting the 50% limit for restaurant meals, the legislation does not change the rules for deducting business meals. All the other existing requirements, including proper documentation, continue to apply. Thus, to be deductible:
- The food and beverages cannot be lavish or extravagant under the circumstances.
- You or one of your employees must be present when the food or beverages are served.
- The food or beverages must be provided to you or to a “business associate.” This is defined as a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal in your business.
If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required due to entertainment being nondeductible.
Please contact our office with any further questions you might have on this provision or any other questions pertaining to The Consolidated Appropriations Act.