IRS Issues New Guidance on the 100% Meal Deduction

Since the American Rescue Plan Act of 2021 was signed into law last month by President Biden, there has been a flurry of changes coming out of Washington. This includes an extension to the Paycheck Protection Program application deadline, IRS extension of the individual tax filing deadline, an increase in EIDL maximums, and the introduction of the new American Jobs Plan.  All of this just months after the Consolidated Appropriations Act, 2021, (CAA) was passed at the end of December. Although it may seem like a distant memory there was one important change, the temporary 100% meal deduction, which offers many Atlanta businesses an immediate opportunity. Unfortunately, some have been reluctant to take advantage of the expanded deduction because of a lack of formal guidance. The good news is the IRS recently issued Notice 2021-25, Temporary 100% Deduction for Business Meal Expenses, that provides details on when the deduction can be claimed. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

New Meal Deduction Rules

As a refresher, starting on January 1, 2021, through December 31, 2022, a business may claim 100% of food or beverage expenses paid to restaurants assuming the business owner (or employee) is present when provided and the expense is not lavish or extravagant under the circumstances. For all other entertainment and business meal expenses, the 50% meal deduction would still apply.

IRS Guidance Highlights

The guidance provides additional information on when the higher deduction amount can be claimed.

• Restaurant Definition – 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 Eating Facilities – 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 with the employer, is NOT a qualifying restaurant for purposes of the expanded meal deduction.

Contact Us

The increased business meal deduction offers an additional dimension of savings for Atlanta businesses. The recently issued guidance provides important details that should be applied when determining whether an expense qualifies for the larger deduction amount. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.