SMALL BUSINESS TIPS

Small Business Tips

Deducting 100% of your Business Meals

In the past, the tax deduction for business-related meals has generally been limited to 50% of the cost of the meal. However, to help the restaurant industry recover from the Covid-19 pandemic, the relief bill signed into law at the end of last year temporarily increased the business meal deduction to 100% for tax years 2021 and 2022. This means that you can now fully deduct the cost of your business meals provided they meet a few requirements.

What Qualifies as a Business Meal?

The first step is to make sure your meal qualifies as a business expense. Deductible business meals include:

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Lunch Date

Meals for yourself while out of town on a qualified business trip. Note that you cannot deduct your own meals while working unless you are either out of town on an overnight business trip or meeting with a potential business associate.

To substantiate your meal as a qualified business expense you should save the receipt as well as document who you met with or the purpose of your out-of-town trip.

Meals shared between you and a person with whom you could reasonably expect to engage in business activity, such as a customer, supplier, employee, partner, or professional advisor.

How Do You Qualify for the 100% Deduction?

In the past, the tax deduction for business-related meals has generally been limited to 50% of the cost of the meal. However, to help the restaurant industry recover from the Covid-19 pandemic, the relief bill signed into law at the end of last year temporarily increased the business meal deduction to 100% for tax years 2021 and 2022. This means that you can now fully deduct the cost of your business meals provided they meet a few requirements.

What Doesn't Qualify for 100% Deduction?

Businesses that are not qualified restaurants include any that primarily sell pre-packaged food or beverages not for immediate consumption, including:

Grocery Store

Specialty Food Store

Liquor Store

Drug Store

Convenience Store

News Stand

Vending Machine

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Meals purchased from any of the places mentioned above would still be limited to the 50% deduction.

If you choose to use federal per diem rates to deduct your meals during business trips or to reimburse your employees for business meals, you are also limited to the regular 50% deduction. To qualify for the 100% deduction you must use the actual cost of the meals.

Summary

Business meals have traditionally been a sore spot for business owners due to the limited tax benefits relative to other business expenses. With this temporary increase you can now fully deduct your business meals as long as they are a qualified business expense and are provided by a qualified restaurant.