Increase in the 50% Deduction For 2021 & 2022

For a limited time, businesses can now deduct 100% of food or beverage purchases, up from the normal 50%.  The move was introduced in the Consolidated Appropriations Act in late 2020, and the IRS and Department of the Treasury recently clarified the details. 

Helping Restaurants and Businesses

The goal of this change is twofold.  First, it helps restaurants, an industry that was devastated by the ongoing COVID-19 pandemic.  Second, the deduction also expands the tax break for any entity with business-related meal expenses.

Stipulations and Applicable Dates to Note

Businesses can claim 100 percent of food or beverages paid to restaurants between Jan. 1, 2021, through Dec. 31, 2022.  One of the stipulations, though, is that the business owner or an employed individual must be present when the meals or drinks are provided.  Additionally, the expense must also not be considered extravagant or lavish.   The requirements to deduct business meals have not changed; the expense must still be ordinary and necessary in the course of your business operations.

What Counts as Food or Beverage Purchases?

Though the language is broad, food or beverage purchases generally include any businesses that prepare and sell food or beverages for immediate consumption, whether that be on-site or off-site. This means it applies to both dining inside a restaurant or take-out.

Excluded from this group are: 

  • businesses like grocery stores and convenience stores that primarily sell pre-packaged goods not intended for immediate consumption.
  • some employer-operated eating facilities, such as on-site cafeterias or food courts, even if the facility is managed and operated by an unrelated third party.
  • liquor stores.
  • drug stores.
  • vending machines.
  • newsstands.

For more information or to discuss your individual situation, contact your tax advisor.