Podcast: Meals and Entertainment

meals and entertainment rules

Written by Jeff Dvorachek

December 3, 2021

Back in June, we did a show on the new meals and entertainment rules. There has been some recent guidance on this issue that I want to discuss today.

Let’s go back a little bit and talk about the old rules

  • Prior to 1/1/21, a business could not take a deduction for entertainment expenses, but it could take a 50% deductions or any meals expenses incurred.
  • While you still cannot take any deduction for entertainment expenses, there was a temporary change the deductibility of the meals expenses.

What was the change?

  • The tax law changed to allow for meals to be deductible at 100% for expenses incurred in 2021 and 2022 only.
  • The tax law said that the 100% deduction applied to any food purchases from restaurants only.
  • And as we know there are a lot of other sources for food and beverage.

So what did they end up saying?

  • The tax law limited the deduction for a restaurant that prepares and sells food or beverage to retail customers for immediate consumption on the business premises.
  • They later clarified this to say that a to-go order or a drive through also qualifies.
  • They also said that a place that sells food on a take-out basis or a food truck would qualify.
  • So you don’t have to eat inside the restaurant.

What doesn’t it include?

  • It does not include a business that primarily sells pre-packaged foods not intended for immediate consumption.
  • Examples of this would be grocery stores, convenience stores and liquor stores.
  • It also does not include vending machines or kiosks.

In know many businesses use a meal per-diem. Is that 100% deductible?

  • As a quick refresher, a number of years ago the IRS made it easier to reimburse an employee for meals expense.
  • Rather than have the employee submit a bunch of receipts, they are allowed to get reimbursed a set amount per day. This amount is different depending on what city you are in.
  • Getting back to your question….based on an IRS Notice just recently, per-diems do qualify for the 100% deduction as long as you follow the per-diem rules.
  • This was a major change since many commentators thought it would be the opposite and no deduction would be allowed.

Are there other meals expenses that can be 100% deductible?

  • Yes, prior to this law and now, a business can deduct 100% of the business meals if it is a
    • Companywide holiday or other party
    • Food or drinks provided free of charge for the public
    • Food that is included in taxable wages of an employee.

Did these rules make any changes to entertainment expenses?

  • As I mentioned earlier, they did not. Entertainment expenses are still not deductible.
  • But if there is a separate meals component, those meals expenses would apply.
  • If there is just one bill that does not separate the bill, then it becomes difficult to deduct any meals portion.

Be sure to talk to a tax professional if you have any questions about the new meals and entertainment rules.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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