The restaurant industry has been one of the industries most impacted by the coronavirus pandemic. In an effort to stimulate restaurants, and businesses in general, the Consolidated Appropriations Act signed December 27, 2020 attempts to provide much-needed assistance to some of the industries most affected. Among its provisions, the Act provides a temporary 100% deduction for tax years 2021 and 2022 for business meals provided by a restaurant. This change in percentage is a temporary reprieve from the statutory 50% limitation on the business deduction. The language of the Act – “by a restaurant” rather than “in” – makes clear that the deduction isn’t limited to meals eaten on-site – takeout and delivery also qualify.
The current rules and regulations that otherwise govern the deductibility of business meals are set forth in the 2017 Tax Cuts and Jobs Act (TCJA). (Here’s a link to our TCJA article based on law before the recent 2020 changes.) What is and isn’t allowed as a deduction now under the new Consolidated Appropriations Act is complicated and requires considerable interpretation. Before attempting to write-off every food expense, it is important to remember some of the criteria for qualifying as a business meal:
- The expense is ordinary and necessary
- The expense isn’t lavish or extravagant, and
- The taxpayer, or an employee of the taxpayer, must be present.
One accounting procedure change that was critical after the TCJA and becomes even more critical now is how businesses account for their meal expenses. Most businesses used to account for their meal expenses together with their entertainment expenses in the same account – “meals and entertainment” – and many still do. However, given that the TCJA eliminated the deduction for entertainment expenses, it became critical to separate the expenses in order to retain the 50% deductibility of meals. Now, even more so, in order to retain the 100% deductibility of certain business meals, it becomes critical to separate and track these types of expenses.