In an effort to help the restaurant industry, Congress included in the Consolidated Appropriations Act of 2021 a temporary provision to allow the cost of meals to be 100% deductible for 2021 and 2022, an increase from the 50% limit we have had since 1993. Last week, the IRS issued guidance explaining when the 100% deduction is available and when the 50% limitation continues to apply.
Meal expenses provided by a restaurant are 100% deductible. The IRS provides a definition for the term “restaurant”, as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. The meal would still have to meet the requirements of not being lavish or extravagant and the taxpayer or taxpayer’s employee must be present at the furnishing of the food or beverage.
The definition of a restaurant does not include a business that sells pre-packaged food or beverages not for immediate consumption, such as a convenience store, grocery store, or vending machine. The 50% limitation continues to apply to the amount of food or beverage purchased from businesses that do not qualify under the restaurant provision.