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Clarifying Business Meal Expenses for 2021 and 2022

The IRS recently clarified what types of business meals qualify for 100% expensing in 2021 and 2022. Meals must come from a restaurant, defined as any business preparing and selling food or beverage to retail customers for immediate consumption. Whether the food is consumed on the premises doesn’t matter.

Businesses selling pre-packaged food and drink that’s not for immediate consumption (e.g., grocery stores, liquor stores, and vending machines) don’t qualify.

This means dine-in, takeout and food carts/trucks all qualify. Everything else is out.

Remember that for a business meal to qualify as tax-deductible, it must have a business purpose, must not be lavish or extravagant, must have the business owner or employee present along with a business contact (e.g., customer or vendor) and must meet the ordinary and necessary definition.

Be sure to keep itemized receipts, not just the signed credit card slip, and write on the receipt who was present and what topics were discussed.

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Reminder of Special Tax Breaks

The December 2020 stimulus package provided a few noteworthy tax breaks for companies.

A temporary tax break for 2021 and 2022 allows businesses to deduct 100% of business meals eaten at a restaurant, up from the usual 50%.

For businesses hard hit by the COVID-19 pandemic, the Employee Retention Tax Credit is available for the first half of 2021. Eligible businesses that were either shut down by the government or incurred at least a 20% reduction in gross receipts for one of the first two quarters of 2021 may qualify for this credit of up to $14,000 per employee. Claim this credit when you file quarterly form 941.

The Work Opportunity Tax Credit and the Family Medical Leave Tax Credit were extended to December 31, 2025.

Employers who pay qualified education expenses, including student loan payments, for employees can deduct up to $5,250 per employee through 2025.