Tax Deduction Change on Food and Beverage Expenses

Who’s buying lunch? The IRS recently provided guidance under the Taxpayer Certainty and Disaster Relief Act of 2020, that may have you volunteering to pick up the tab.

The Act temporarily allows businesses to deduct 100% of restaurant meals and beverages that occur between January 1, 2021, to December 31, 2022. This is a change from previous tax rulings [Under Sec. 274(n)(1)] which limited business’s food and beverage deductions to 50%.

Similarly, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the owner or employee of the paying business is present when the food or beverages are provided, and the expense is not lavish or extravagant under the circumstances.

The notice defines the term “restaurant” as a business that prepares and sells food or beverages to retail customers for immediate on-premise or off-premise consumption. This may include bars, food trucks, taprooms, etc. The Term does not include a business that primarily sells pre-packaged goods such as a grocery store, liquor store, convenience store, vending machine, etc.

Additionally, an employer may not treat an employer-operated eating facility as a restaurant, even if the facility is operated by a third party.

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MBE CPAs PPP2 Qualification resource sheet can be downloaded here.