The IRS has unveiled guidance that temporarily throws open the gates to recouping 100 percent of the expense for certain food and beverage purchases. The new rules for this business deduction went into effect on Jan.1 of this year.
The guidance is spelled out in Notice 2021-25, which addresses changes set out in the Taxpayer Certainty and Disaster Relief Act of 2020. The new law created an exception to the usual 50 percent amount that businesses can claim as a food and beverage business expense.
The notice lays out the conditions that qualify for the temporary deduction. Purchases are eligible between Jan. 1, 2021, and Dec. 31, 2022, and the owner of the business—or an employee—has to be present when the food or beverages are served.
The Notice includes other restrictions as well:
“For this purpose, the term ‘restaurant’ means 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.
“However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.”
And just to make sure those business lunches don’t get too fancy, the IRS states in the release that “the expense can’t be lavish or extravagant under the circumstances.”
The notice also states that “any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income” or an employer-operated eating facility that’s treated as a fringe benefit doesn’t qualify for the higher deduction rate—even if it’s run by a third-party contractor.
Any claims for the deduction, the notice stipulates, have to include documentation showing the cost of the food or beverages separate from the costs of any entertainment.
Check out the IRS website, IRS.gov, for more information on businesses seeking coronavirus-related tax relief.
Sources: Treasury, IRS provide guidance on tax relief for deductions for food or beverages from restaurants; Temporary 100-Percent Deduction for Business Meal Expenses.