New Dining Tax Deductions—Bon Apetit!
One of the things that I have found bothersome about filing taxes is the travel and business dining tax deductions. That 50% limit really seemed like they were going overboard, and creating additional work. There is some justification for this limitation, but it is also a deduction, which means that even if you were able to deduct the full amount, you would not be getting all the money back.
These are personal opinions, and they do not change the way things are, but Covid 19 has created so many different financial issues to be dealt with that congress has passed a variety of temporary measures to help alleviate some of the strain on certain industries. One of these is the restaurant industry that has seen many businesses decimated or closed due to lack of people eating out for personal reasons or business ones. So, for the tax years 2021 and 2022, businesses will be able to deduct business meals at 100% rather than 50% for qualifying meals.
Here, in a nutshell, are the qualifications:
- Business Meetings held while Dining—Whether this is a meal with clients, or an out-of-office team or company dinner, these restaurant meals are now deductible at 100%. It is still essential to keep good records of the purpose of the meeting, and who was present, so pull out that paper or digital calendar and take careful notes on the meeting.
- Group Meetings with Food—This was originally a 100% deduction, but during the last two years it was cut in half, and entertainment expenses were completely eliminated. For the next two tax years, the food expense has been increased back to 100%. If you order in a meal from a restaurant (takeout) for a staff meeting, that is a fully deductible expense.
- Food in the Office (Note Takeout)—Some companies bring in food for employees that is not takeout (examples: a big box of granola bars, or a case of sodas to get employees on a little bit of a sugar and caffeine rush, not purchased from a restaurant, but at a grocery store). There is still a little lack of clarity on these types of items, which the IRS tends to provide as time passes. But donuts on Friday, purchased from a bakery that also serves soups and sandwiches would more likely classify as a restaurant for food in the office.
- Traveling Yourself for Business—If your job requires you to make trips outside of normal commute range, meals purchased from restaurants on the road are classified as business meals even if you are not meeting with a client at the time that you eat. Like other items specified above, these have been deductible at 50%, but are now deductible at 100% for the next two tax years.
With these new rules in effect for 2021 and 2022, and the need for additional clarification, we highly recommend that you work with a tax professional. They will be on top of any new memoranda or guidelines put out by the IRS and can help you tailor your use of this deduction to match as closely as possible with what we do know about this relief measure.
Do not be afraid of the deduction, use it. When congress and the IRS give us a gift, it is designed to help us in building our business, and in this case, helping the restaurant and related industries through their difficult times as well. Hopefully, we are turning the corner on Covid, so the deduction increases may not be extended beyond 2022, but we can use them while they are in effect, and hope that the deductions will be extended beyond current plans.