In January 2021, Congress passed the Consolidated Appropriations Act (CAA) of 2021, which provided impactful relief for the American people during the COVID-19 pandemic. This law, among several other initiatives, made a significant change to the way businesses can deduct business-related meal expenses.
Before the CAA was passed into law, the established rule for business-related meal expenses was that 50% of most meal costs from restaurants were deductible. With the new law set in place specifically for 2021 and 2022, businesses can deduct 100% of most meal costs at restaurants for this limited time. Congress enacted this new standard to increase customer traffic in restaurants and create a tax incentive for businesses to spend more money in their local economy.
When utilizing this benefit, there are still a few factors involved in determining whether a meal purchase is 100% deductible or not. According to the preexisting IRS regulations, meals that are eligible:
1) must come from an establishment that provides meals available for immediate consumption,
2) must be attended by the business owner or employees, and
3) must be a reasonable expense in the ordinary course of business.
Meals that are purchased from an establishment selling primarily pre-packed foods, not requiring immediate consumption (i.e. grocery stores), are not included in the CAA and continue to not qualify for deductibility. Additionally, all other business-related expenses for meals, beverages, or entertainment that fall outside of the new requirements will still be eligible for only a 50% deduction.
Meals and entertainment expenses are one of the more confusing areas of business expense tax code and are given to change year over year. Pair up with a CPA firm who stays on top of tax legislation - like Sweeten CPA!
From the desk of Jesse Gessel