The Consolidated Appropriations Act of 2021 included a provision for calendar year 2021 and 2022 to allow businesses to deduct 100% of expenses for meals if they are “provided by a restaurant.” Previously, this deduction was limited to 50%. The IRS has released new guidance clarifying the definition of “provided by a restaurant” along with other details about the business meal expense provision.

The IRS defines the term “restaurant” as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. Meals from businesses that meet these requirements will be 100% deductible in 2021 and 2022.

Meals purchased from other types of businesses that sell pre-packaged food/beverages that are “not for immediate consumption” are only 50% deductible.  Food from these types of establishments would include food sold at grocery stores, specialty food stores, liquor stores, drug stores, convenience stores, newsstands, vending machines or kiosks.

The IRS also points out in the guidance that meals purchased at an eating facility located on the employer’s premises or provided by an employer-operated eating facility are not considered as being purchased from a “restaurant,” making them only 50% deductible.

This new guidance does not change how the IRS treats entertainment expenses, which are still not deductible.

If you have questions about business meal expense deductibility, please contact a member of your DGC client service team or Catherine Doe, CPA at 781-937-5331 / cdoe@dgccpa.com. You can also visit DGC's coronavirus web page at dgccpa.com/coronavirus which is frequently updated with new resources to help you deal with the financial impact of the coronavirus on you and your business.

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