For 2021 and 2022, your Uncle Sam has increased the tax deduction for business meals from 50% to 100% for food and beverages provided by a restaurant – including the tip, sales tax, and any delivery fees.
This win-win for both your business and your restaurant of choice comes with the following requirements:
- Like all business expenses, it needs to be “ordinary and necessary” for the carrying on of your trade or business.
- The expense can’t be lavish or extravagant based on the circumstances.
- The business owner or an employee must be present when the food/beverages are provided.
- The meal is provided to an employee, current or potential business customer, client, consultant, or similar business contact.
What constitutes a “restaurant” for purposes of this rule? Here’s what it’s not:
- a store that primarily sells pre-packed food or beverages not for immediate consumption – such as your local grocery store
- a specialty food store
- a beer, wine, or liquor store
- a drug store
- a convenience store
- a newsstand
- a vending machine
- a kiosk
- an eating facility located on the employer’s business premises, even if operated by a third party
So, if you order in pizza for the team, the cost is 100% tax deductible. If you pick up the pizza from the local grocery store’s deli counter, it’s only 50% deductible.
Be sure to substantiate the expense with good documentation – not just the cost of the meal, but also the date of the expense, the name and location of the restaurant, along with the business purpose and business relationship of the people who enjoyed the meal.
Questions? Contact us for more information.