What Businesses Need To Know About the Temporary Tax Deduction for Food and Beverages

The IRS and Treasury issued guidance, Notice 2021-25, on the temporary tax deduction for business meals. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted in December, temporarily increased the deduction from 50% to 100% for a business’s restaurant food and beverage expenses. The deduction provides a tax break for businesses while helping restaurants impacted by the COVID-19 pandemic.

ppp loan forgiveness applicationFrom January 1, 2021 through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner or an employee of the business is present when food or beverages are provided. The expense can’t be lavish or extravagant under the circumstances.

All other food and beverage expenses are still subject to the 50% deduction limitation unless some other exception applies.

The guidance defines a restaurant as a business that prepares and sells food or beverages to retail customers for immediate on-premises and/or off-premises consumption. The food and beverages don’t need to be consumed on the premises for the 100% deduction to apply.

However, businesses that primarily sell pre-packaged goods not for immediate consumption, don’t meet the qualification as a restaurant. These include grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines, or kiosks. Certain employer-operated eating facilities, even if these facilities are operated by a third party under contract with the employer, are also not considered a restaurant.

Questions

If you have questions about the temporary deduction, contact us today to discuss your specific situation.

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