The Taxpayer Certainty and Disaster Relief Act of 2020 allows a 100% deduction for business meals and beverages provided by a restaurant after Dec. 31, 2020 and before Jan. 1, 2023, as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances. Previously, meals were generally limited to a 50% deduction. On April 8, 2021, the IRS issued guidance in Notice 2021-25 to further explain how to apply the temporary exception.
Under Notice 2021-25, the term ‘restaurant’ is defined 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. The Notice states that a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, liquor stores, drug store, convenience store, and vending machines. The 50% deduction continues to apply for any food or beverages purchased from these locations.
The Notice also clarifies that an employer may not treat certain on-premises employer-operated eating facilities like restaurants, even if these facilities are operated by a third-party contractor.
Laura Howes, CPA, is a Tax Manager at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.