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:

  • 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.

  • 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.

How Do You Qualify for the 100% Deduction?

Since the purpose of temporarily increasing the meal deduction was to bolster the struggling restaurant industry, the 100% deduction only applies if the meal is provided by a business that prepares and sells food or beverages to customers for immediate consumption. You are not required to purchase the meal directly from a qualified restaurant, as long as the food is provided by one. This means that meals you purchase through a third-party food delivery service can still qualify for the 100% deduction.

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 stores

  • Specialty food stores

  • Beer, wine, or liquor stores

  • Drug stores

  • Convenience stores

  • Newsstands

  • Vending machines or kiosks

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.