After such a long time with the meals and entertainment expense not being touched, the past few years it sure has gotten some attention.
With the passing of a COVID relief bill there was a great change made that will impact business owners.
We have been getting questions on this change in our Free Facebook Group so I wanted to take the time out to touch on it so everyone knows!
How Does The Meal Deduction Typically Work?
Before we get into the exciting new change, lets just discuss in general how meals and entertainment are typically treated.
- Entertainment – NOT DEDUCTIBLE! The Tax Cuts and Jobs Act removed any deduction for entertainment expenses.
- Note: The meal portion of an entertainment event IS deductible assuming it can be broken out. If you have a situation where it’s all included in one price you will want an itemized breakout so you can ensure a partial deduction.
- Meals Expense
- Dining w/ a Prospect, Client, Vendor, etc: 50% Deductible
- Dining When Traveling: 50% Deductible
- Must be outside of your normal commute
- Dining w/ Staff: 50% Deductible
- Office Meals / Food: 50% Deductible
- Company Parties / Presentations / COGS: 100% Deductible
- Receipts / Providing Proof
- As always you still need to provide business purpose for all of these expenses. Be sure to keep a receipt and record the: who, what, where, when, why, etc.
Great, Now What Changed For 2021?
This is the exciting part…
- As we discussed, meals for the most part are traditionally limited to a 50% deduction.
- However with a recent COVID relief bill, there has been a temporary exception to the limitation.
- You can deduct 100% of food and beverage expenses from restaurants.
- This is for tax years 2021 AND 2022.
Summary Cheat Sheet – Amount Deductible for Tax Year 2021-2022
This is specific to 2021-2022 as the law stands now.
- 100% Deductible
- Restaurant meals with clients and prospects
- Employee meals for required business meeting, purchased from a restaurant
- Meal served at chamber of commerce meeting held in a hotel meeting room
- Meal consumed in a fancy restaurant while in overnight business travel status
- Year-end party for employees and spouses
- Golf outing for employees and spouses
- Meals made on premises for general public at marketing presentation
- Team-building recreational event for all employee
- Meal with a prospective customer at the country club following your non-deductible round of golf
- 50% Deductible
- Employee meals for convenience of employer, served by in-house cafeteria
- Meals cooked by you in your hotel room kitchen while traveling away from home overnight
- NOT Deductible
- Entertainment such as baseball and football games with clients and prospect
- Year-end party for customers, classified as entertainment
- Golf, theater, or football game with your best customer
That is it! So get out to restaurants and get a 100% business deduction while at the same time taking care of these local businesses that got hit hard by COVID.
For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!
If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.