Deductibility of Business Meals Provided by Restaurants in 2021 and 2022

anglinWEB210106-RestaruantChanges made by the Consolidated Appropriation Act, 2021 (CAA, 2021) include a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible.

Details Included in New Legislation

In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense. The new legislation adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word “by” (rather than “in”) a restaurant makes it clear that the new rule isn’t limited to meals eaten on the restaurant’s premises. Takeout and delivery meals provided by a restaurant are also fully deductible

Rules for Deducting Business Meals

It’s important to note that, other than lifting the 50% limit for restaurant meals, the legislation doesn’t change the rules for deducting business meals. All the other existing requirements continue to apply. Thus, to be deductible:

• The food and beverages can’t be lavish or extravagant under the circumstances
• You or one of your employees must be present when the food or beverages are served
• 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 because the entertainment, unlike the food and beverages, is nondeductible.

We are Here to Help

Please reach out to our team if you would like more information about deducting business meals or have questions regarding other aspects of the new legislation.