2020 business meal deduction: 100% of meals deductible (2023)

WhileTax Reduction and Employment Lawwhile Congress has explicitly changed entertainment expenses to be 100% non-deductible, Congress still hasn't changed much of the dining rules (which have business benefits). There were few clues and a lot of speculation, but in October 2020, the IRS finally gave them to us.final regulationsto provide some tips.

There is a concern that if the meal is for entertainment purposes only, it will not be tax deductible either. I contend that meeting the IRS's minimum standards for a meal still allows for a deduction. Patterns include:

• The meal is not sumptuous/extravagant.
• A serious business discussion took place before, during, or after a meal
• The meal was business.
• The cost of the meal was not included in the entertainment ticket price.
• The businessman was present at the meal.

Therefore, meals can be classified as business costs if they are directly related or related to the active conduct of trade or business (with valid purpose and documentation). Once this test is established, expenses can be divided into two categories: 50% deductible or 100% deductible. There is an additional caveat that if a meal is considered "luxurious and extravagant" under the circumstances, the extra serving due to the extravagance will not be deductible. Meals with employees or business partners are only deductible if there is a direct or indirect business purpose. I've listed common items that fall into each category to reduce your taxable income!

Meals 100% tax deductible (unchanged):

1. Meal expenses for a social or recreational event, such as a company picnic, holiday party, employee recognition or career advancement. This is purely for the employee's benefit and does not take place on company premises, which is why employees work harder. If any benefit can be obtained by the employer, it will be limited to 50% as set out below.
2. Food made available free of charge to the public, usually as part of a promotional campaign.
3. If a thematic expense is included as the employee's taxable compensation and included on the W-2, that expense will be fully deductible by the employer.
4. If a professional company separately bills the customer for actual meal expenses and the customer reimburses them, the actual meal expenses related to that contract are fully deductible. However, if themed expenses are included on the invoice but not shown separately as actual costs, then these dining expenses are only 50% deductible.
5. Meals and food that are part of a charity sporting event are fully tax deductible. To qualify, the event must be organized primarily to benefit a 501(c)(3) (not-for-profit) organization, pay 100 percent of net proceeds to the organization, and involve volunteers for essentially all work performed in connection with the event.
6. In an entertainment venue where food or drink is provided to the public, not just employees, for advertising or business presentation.
7. If the company sells food, employers can still deduct 100% of meals served to employees between, before or after shifts.

Potentially capped at 50 percent under the October 2020 IRS Final Rule (formerly 100 percent deductible):

1. Office snacks, including coffee, soft drinks, bottled water, donuts and similar snacks or beverages provided to employees on company premises.
2. Any meals provided on the employer's premises for your convenience. For example, if you provide employees with meals so they can work late, in the break room, on weekends or on the job, it is for their convenience to keep them working and the meal is to encourage them to work.

Meals with 50% deductible (unchanged):

1. Meal costs at a business meeting of employees, shareholders, agents and directors. Office meetings and partner meetings fall into this category. If the meal is not of a business nature, it is not tax deductible.
2. In general, any meals during business trips. If part of the business trip can be considered personal and not related to the business function of the trip, then part of the food expenses must also be considered personal and not deductible.
3. Meals during a conference, seminar or other meeting, even if the cost of meals is not listed separately from the cost of the event. Unless otherwise specified, the taxpayer must calculate them based on reasonableness or applicable per diems in that location.
4. Meals with people related to the company, such as customers and suppliers, provided there is a business purpose or some benefit to the company.
5. Meal expenses incurred by an employee on a business trip and reimbursed to that employee are still only 50% deductible, even if the employee was reimbursed for 100% of the meal costs.
6. Per diem refunds are always only 50% deductible. However, if you are paying an independent contractor, this will be added to your income of 1,099; therefore, they will be fully tax deductible and must be on the Contract Services ledger account and not on the Meals and Entertainment account.
7. At an entertainment venue, if the meal was billed separately from any activity that could be considered an entertainment expense (e.g. a sporting event), the amount charged for the food or drink on the bill, invoice or receipt should reflect the usual amount from the location. cost to sell those items, if any, must be purchased separately from the entertainment or must be close to fair value for those items.

A valuable tip from Jackie:Ideally, you should set up three ledger accounts for meals and entertainment: one for 50% deductible meals, one for 100% deductible meals, and one for non-deductible entertainment. Focus on industries that have the most to gain from 100% deductions, including in catering services, serving many public events, or conducting social activities that the employer does not profit from.

If this list sounds daunting, use it.useful block diagramwe created inTaxPlanIQto help you and your business customers (subject to change at any time!). Also, let's continue the discussion in myInfluential accounting firms"Facebook group.

Editor's Note:This article was updated with new information on December 2, 2020.

7 Responses to “2020 Business Meal Deduction: 100% Meal Deductible”

1. 

   Based on the summary above, I think your block diagram is wrong. “The meal was provided as part of a charity/sporting event” if so, 50% deductible. Whereas above you wrote: “Meals and foods that are part of a charity sporting event are fully tax deductible. To qualify, the event must be organized primarily to benefit a 501(c)(3) (not-for-profit) organization, contribute 100 percent of net income to the organization, and involve volunteers for substantially all work performed at the event under 100% tax deductible? Does the flowchart take other circumstances into account, for example, does the company send an employee to a charity gala to represent the company?

   See Also

   The Federal Revenue explains that the temporary deduction of 100% for meals in restaurants is for part of the diet

   Thank you Jackie

   • 

     Hi Mike - thanks for your comment. Yes, the flowchart for this particular line item was out of date. It is 100% tax deductible. We will update our data and any future articles published. Thanks!

2. 

   Q: I sell restaurant supplies and when I visit certain locations, I try to make sure my customers can do business in that location. Can these expenses be deducted?

   • 

     Hi Kim – you should contact your tax advisor for guidance. Thanks.

     (Video) NEW: Business Meals are NOW 100% Tax Deductible in 2021!

3. 

   This is a fantastic article for anyone involved in office staff management and facility management. I wonder if 1) where it says "potentially" for the two changing items i.e. snacks and employee incentives - is it official yet? and 2) with today's legislative announcement (12/22) for business meals 100% tax deductible through 2022, are all categories now 100%? Perhaps another article after the COVID regulations were signed and clarified. Thanks for the great info, Jackie!

   • 

     Thank you for your question; the author will respond shortly.

     • 

       De Jackie Meyer:
       According to CNN Business, “The Covid relief package that came into effect allows companies to deduct 100% of business meals served to customers in 2021 and 2022. dine in or for catered, delivered or take out also qualify. That may depend on the Treasury Department's interpretation and guidance."

       Here is the text of the bill that allows for the deduction of 100% of meals in 2021/2022:
       AT THE. 210. TEMPORARY DEDUCTION FROM THE FULL DEDUCTION FOR BUSINESS MEALS
       (a) GENERAL PROVISIONS. Section 274(n)(2) of the Internal Revenue Code of 1986 is amended by deleting the "or" at the end of paragraph (B) and a period at the end of paragraph (C)(iv) and inserting "or" and inserting after paragraph ((C) the following new paragraph from paragraph 11:
       "(D) such expense is-
       “(i) for food or drink provided by the restaurant and
       "(ii) paid or incurred prior to January 1, 2023."
       (b) EFFECTIVE DATE. Changes made in this section apply to amounts paid or incurred after December 31, 2020.