Business meals deductions for 2021 and 2022 changes will be welcomed by many business owners!  The Consolidated Appropriations Act of 2021 made a key change to business meals deductions.  For tax years 2021 and 2022, business meals are 100% deductible, as long as the meal is from a restaurant, is with or for a current or potential customer, consultant, or similar qualified business contact.  The taxpayer has to be “present” in order to take the 100% meals deduction.

A “qualified business contact” is a person with whom the taxpayer could reasonably expect to engage or deal with in the active conduct of the taxpayer’s business, such as the taxpayer’s customer, client, supplier, employee, agent, partner or professional adviser, whether established or prospective. 

We’re sure to get more guidance from Congress and the IRS on this, but for now, we can take this to mean that the following are excluded and still subject to a 50% deduction:

  • Alcohol-only “meals”
  • Food bought at concession stands
  • Fast food “restaurants”
  • Meals with spouses, even if the spouse is an employee

What this means is that business owners will have to start breaking out their meals into 50% and 100% deductible categories.  This shouldn’t be anything new as there has always been these two categories, both before the TCJA and after.

Since we’re bringing up the TCJA, let’s talk about the rule changes brought on by the TCJA with regards to the Meals and Entertainment expenses.  Prior to 2018, businesses received a 50% deduction for any meals and entertainment expenses with clients, prospective clients, referral partners, etc.

After the TCJA, some changes in recordkeeping and bookkeeping systems were made.  Here is a summary that breaks down Meals from Entertainment for 2019 and 2020:

Meals Expenses

  • You may continue to deduct Meals Expenses at 50%
  • Same rules as before – best to keep receipts/scanned copies
  • Meals expenses greater than $75 require the date, location, person(s) at meal, and business purpose of meal
  • Meals as part of Entertainment require itemized receipt of food/beverage expenses stated separately from entertainment
  • This is a 50% deduction for tax years 2019, 2020, 2023, 2024 and 2025
  • This is a 100% deduction for tax years 2021 and 2022 if it meets the earlier discussed criteria

Entertainment Expenses

  • For the most part, Entertainment Expenses (i.e.: golf, bowling, ball games, etc.) are no longer deductible at any level
  • Available Deduction 1: Sales presentation expenses
    • Cost of renting a room/facility and associated food/beverages is 100% deductible
      • Side note: let’s say you rent a whole bowling alley for a major sales presentation.  The portion that is rent of facilities is deductible.  However, the portion that is attributed to actually bowling is not.  You must get detailed, itemized receipts that split out cost for facility rental, cost of bowling, and cost of meals/beverages.
    • Must give sales presentation
    • Must keep log of attendees a your only attendees can’t be family members, good try, though
  • Deduction 2: Employee parties = 100% deduction
    • Must primarily benefit non-owner employees (more than 50% of attendees must be non-owner employees and their family members)
    • Non-employee guests, such as prospects and referral partners, don’t count, unless you turn this into a Sales Presentation
    • Family members are considered owner-employees through family attribution
    • Must keep log of people in attendance

As you can see, the rules are tricky.  And after the Tax Cuts and Jobs Act and Consolidated Appropriations Act of 2021, it’s even more important to understand the rules and how to protect yourself in case of an audit.

Published On: January 29th, 2021 / Categories: Uncategorized /

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