November 22, 2021
Business Meals Bonus Deduction for 2021 & 2022!
Many business owners don’t realize that meals are not 100% deductible. Yep, that’s right, they have only been able to take 50% of business related meals according to the tax laws. Taking clients, prospects or employees out, has only been a partial deduction for some time now. The other 50% is truly “on them”.
COVID and the Taxpayer Certainty and Relief Act 2020 however has given businesses an opportunity! There is a temporary 100% deduction for expenses incurred in 2021 and 2020 for food or beverages bought in a restaurant! This rule was put into place to help restaurants, one of the hardest hit industries during the pandemic.
The Notice states that the temporary 100 percent deduction is for expenses that are paid or incurred after December 31, 2020 and before January 1, 2023. The entertainment and entertainment portion of a meeting are still excluded and not deductible as outlines in the Tax Cuts and Jobs Act 2017.
The IRS also recently put out some clarification for employers that offer per diem allowances in this Notice. Bottom line is that as long as the rules are applied as issued in previous guidance, the per diem allowance for restaurant meals will also apply.
What does all this mean to you?
For 2021 and 2022 your accounting for meals expense becomes a bit more complex. Because the IRS definition specifically provided the definition of “restaurant.” For purposes of the 2021-2022 deduction, “restaurant” means 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 that are subject to the 100% temporary deduction be accounted for separately than other meals.
Entertainment should also be accounted for separately. (not deductible at all, even if paid by the business)
Meals that do not qualify under the restaurant definition should have it’s own category as well (50% deductible)
At tax time it’s important that you have all of these categorized explicitly. If you do not, your tax preparer will have to assume that the meals do not qualify under the temporary 100% deduction and place them in the 50% category.
Wasatch Accounting Solutions helps businesses with their daily, weekly or monthly bookkeeping. We ensure your business financials are ready for tax time and for business decisions alike. Your great at what you do. We’re great at what we do, giving you timely and accurate financials and tax assistance freeing up your time to build your business. Get the help you need to get back to working ON your business and its continued growth. Working IN your business takes away from your time and energy that can be the fuel you need for success! Call us today to get help with your taxes and accounting!