Companies are getting a small break! IRS is temporarily letting businesses take a 100% deduction on food and beverages from restaurants.
As you know, your company can typically take a 50% deduction on meal and beverage costs, as long as:
- it’s reasonable (not lavish), and
- the company or employee is present when food or drinks are furnished.
From Jan. 1, 2021, through Dec. 31, 2022, your company can take a 100% deduction for food or beverages paid to restaurants. Of course, the normal conditions (mentioned above) still apply.
Your employees may expense food and beverages at a variety of places, from sit-down restaurants to fast food drive-thrus. So, what specifically qualifies for the 100% deduction?
IRS says “restaurants” include “businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption.”
Restaurants don’t include businesses that primarily sell prepackaged goods not for immediate consumption (e.g., grocery stores, convenience stores). The definition also excludes employer-operated eating facilities, even if a third party under contract with your company operates the facilities.
Finally, IRS says your company should still use the 50% deduction if:
- the eating facility is located on-site and provides meals excluded from an employee’s gross income, or
- an employer-operated eating facility’s treated as a de minimis fringe benefit.
You’ll find all the details of this temporary 100% deduction for food and beverages in IRS Notice 2021-25. Be sure to share it with your staff, so they can flag food and beverage expenses that come across and fit that bill.