Tax Tip: 100% Business Deduction for Restaurant Food

In past years, the deductions for food and beverage costs could not exceed 50% of the actual expense. However, the Consolidated Appropriations Act of 2021 (CAA) has announced that it has expanded the business deductibility to 100% for business meals and drinks provided by restaurants. This change means that businesses can deduct 100% of food and beverage costs from restaurants from January 1, 2021 through December 31, 2022.

In order for food and beverages to be deductible, the expenses must meet all of the criteria found below:

• Expense is an ordinary and necessary expense of carrying on a trade or business
• Expense must not be lavish or extravagant under the circumstances
• Taxpayer, or an employee of the taxpayer, must be present when the food and beverages are provided
• Food and beverages are provided to the taxpayer or a business associate, such as a customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective

This provision also defines a restaurant as a business that prepares food or beverages for retail customers to pick-up, dine on-site, or have delivered. This definition excludes almost all grocery and convenience stores (unless the store operates a separate restaurant or cafe area on site). Additionally, facilities operated, overseen, or owned by the employer claiming the deduction, such as a workplace cafeteria, typically do not qualify as restaurants under this law. For example, if you order take-out from a restaurant, this is 100% deductible, however, a meal that is catered from a grocery store would only be 50% deductible.

To be sure you are fully compliant with the CAA, it is best to consult with one of our tax professionals at Perfect Balance. Each situation is different and you always want to make sure you are within the law and the near constant changing tax laws. Call our team today for guidance in preparation, planning, and other tax-related services for your business.