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Amidst a flurry of updates coming out of Washington DC, ranging from extended filing deadlines to increased loan maximums for the Economic Injury Disaster Loan (EIDL) program, the IRS released Notice 2021-25. The Notice provides long-awaited guidance on the temporary 100% deduction for meal expenses implemented as part of the Consolidated Appropriations Act, 2021. The deduction was temporarily changed (2021 & 2022) to permit businesses to claim 100% of food or beverage expenses paid to restaurants when employees are present, and the cost is not lavish under the circumstances. The change was welcome news because the increased deduction amount creates an immediate tax-saving opportunity. However, since the IRS had not issued any guidance, many Los Angeles and Dallas companies have been apprehensive about applying the higher deduction amount. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
The guidance provides important qualification information that should be considered when determining whether meal expenses should be deducted at 50% or 100%. This includes:
- Definition of a Restaurant – The guidance clarifies the term “restaurant” to mean any business that prepares and sells food or beverages for immediate consumption, regardless of whether those items are consumed on-site. Therefore, any qualifying purchases made at such establishments qualify for the 100% deduction. However, purchases made at any business which sells pre-packaged food or beverages such as grocery stores, specialty food stores, beer, wine or liquor stores, convenience stores, or vending machines do not qualify.
- On-Site Facility Exemption– The guidance also clarifies any eating facility located on the business premises for the purpose of furnishing employee meals (excluded from employee gross income), or an employer operated eating facility, even if operated by a third party under contract, is NOT a qualifying restaurant for purposes of the increased meal deduction.
100% Deductible Meals
So, based on the guidance above, what are some common situations in which a business can claim the 100% deduction?
- Meals served during office meetings of employees, partners, and directors assuming the food is provided by a restaurant (meeting the definition provided above).
- Meals consumed during business travel.
- Food and beverage consumed at an in-person seminar or conference.
- Client business meals assuming the expense is not lavish based on the circumstances.
- Food and beverages served at team building events, office holiday parties or other company events.
Today’s guidance provides important clarifications and will make it easier for businesses to select the proper deduction amount. At the same time, it will help companies to shape their meal policies to ensure they can capture the highest deduction rate. If you have questions about the information outlined above or need assistance with a tax or accounting issue, JLK Rosenberger can help. For additional information, call us at 818-334-8643 or click here to contact us. We look forward to speaking with you soon.