In an effort to provide additional stimulus funding, The Consolidated Appropriations Act was signed by the President on December 27, 2020. Included in the guidance were changes to deductions for business meals in tax years 2021 and 2022.
New Provisions include Higher Temporary Deductions
In an effort to stimulate the restaurant industry, businesses will be permitted to fully deduct business meals that would normally be 50% deductible. Although this change will not affect a 2020 tax return, the savings will offer a 100% deduction in 2021 and 2022 for food and beverages provided by a restaurant.
Deductions Set to Change between 2020 and 2021
The following expenses are not deductible for 2020:
- Sporting event tickets
- Transportation to/from a restaurant for client business meals
- Club memberships and club-related expenses
- Meals during entertainment that are not listed separately on the invoice
The following types of expenses are 50% deductible in 2020:
- Meals provided for the convenience of the employer (such as meals for occasional employee overtime) 100% deductible in 2021 and 2022 if the meals are provided by a restaurant
- Water, coffee, and snacks at the office, no change in 2021/22
- Meals included in charitable sports packages 100% deductible in 2021/22
- Meals in office during meetings of employees, stockholders, agents, or directors 100% deductible in 2021 and 2022 if the meals are provided by a restaurant
- Meals during business travel (50% deductible) 100% deductible in 2021/22
- Meals at a seminar or conference (50% deductible) 100% deductible in 2021/22
- Client business meals (50% deductible if the taxpayer is present and not lavish or extravagant) 100% deductible in 2021/22
The following deductions continue to be fully deductible:
- Meals included as taxable compensation to an employee or independent contractor
- Meals sold to a client or customer
- Food offered to the public for free
- Office holiday party or picnic
- Team-building events
Bookkeeping Recommendations for Expenses
K·Coe’s tax and accounting advisors are making two recommendations for bookkeeping expenses.
- Separate expenses that are strictly for entertainment purposes—if you don’t already have one, create a new account for these and designate which are business meals. Travel expenses should be completely separate from entertainment, including meals while traveling. Travel expenses are 100% deductible, except for meals while traveling, which are 50% deductible in 2020 but will be 100% deductible in 2021 and 2022.
- Create a separate category for employee social meals. This category would include things like holiday parties, summer picnics, team building events, staff mentoring activities, etc. All of these types of employee gatherings are 100% deductible expenses.
Should you have any questions regarding using these deductions or tax strategies for your business, contact a KCoe advisor.