For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Otherwise, the limit is usually 50% of the cost of the meal.
To qualify for the higher limit, the business owner or an employee of the business must be present when food or beverages are provided. Moreover, the expense cannot be lavish or extravagant. Restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
What is excluded?
You generally can't deduct meal expenses unless you (or your employee) are present at the furnishing of the food or beverages and such expense is not lavish or extravagant under the circumstances.
Grocery stores, convenience stores, and other businesses that primarily sell pre-packaged goods, not for immediate consumption do not qualify as restaurants. Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if they are operated under contract by a third party.
You may not deduct the cost of meals for personal reasons, even while traveling. But most expenses will be considered business expenses if the trip is "primarily" business. Only those costs directly related to the business you conduct may be deductible if the trip is "primarily" personal and you conduct just minimal business.
How to qualify?
Your business can generally deduct the cost of business meals at 50% beginning in 2023 or for tax years prior to 2021 if:
- The business owner or employee is present.
- The cost of the meal or beverages isn't "lavish or extravagant."
- The meal is with a business contact (such as a customer, employee, vendor, or consultant).
- The meal has an "ordinary and necessary" business purpose.
Entertainment is not deductible, so you can only deduct meal costs at entertainment events if the cost can be separated, like a catered meal delivered to a skybox at a sporting event and invoiced separately.
For more information about this provision, as well as details on the special recordkeeping rules that apply to business meals, see IRS Publication 463, Travel, Gift, and Car Expenses.
Need help deducting meals and entertainment from your business’s taxes? Contact Insogna CPA today for help minimizing your taxes as much as legally possible.