Is It Time to Take Your Clients to Lunch?

Restaurants have finally opened for business. So, what are you waiting for? For the first time since 1993, small business owners may claim a 100% tax deduction on business-related meals purchased from restaurants!
The Consolidated Appropriations Act, which became law on December 27th, 2020, allows for a full deduction rather than the previous 50% deduction so long as the business expense occurs during tax year 2021 or 2022. This deduction applies to food and beverage expenses only… not entertainment. However, the deduction does cover restaurant deliveries, tips, snacks, and sales tax.
You can apply this deduction to any business associate including prospective or existing customers, clients, suppliers, employees, agents, subcontractors, or professional advisors so long as the food purchase relates to a required business activity. The IRS also permits deducting food and beverage expenses purchased at seminars, during travel, for office parties, or team-building events.
The Rules Remain the Same
Other than the deduction increasing from 50% to 100%, the rules for food and beverage deductions remain the same. To be permissible:
The expense must be ordinary and necessary,
The food and beverages cannot be lavish or extravagant,
You or at least one of your employees must be present when the food is delivered or served, and
The food or beverages must be provided to you or a business associate.
Entertainment and Record Keeping
The IRS definition for entertainment includes amusement, recreation, and other events and activities, such as theater, sports, concerts, golf, or vacations. Because these are not deductible, you should separate business meals from entertainment expenses, and create categories for both. If you attend an entertainment event and purchase food and beverages, you may claim a meal and beverage deduction. However, since the entertainment portion is not tax deductible, you need to receive a separate invoice for the food and drinks to justify the claim.
So, consider helping your favorite restaurants recover from their mandatory closures and return to having business meals. If you have any questions, we welcome you to contact us.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.