As part of the Consolidated Appropriations Act signed into law on December 27, 2020, businesses may deduct 100% of the costs of food and beverages purchased from a restaurant in 2022. This includes the full cost of food and beverages, as well as any delivery fees, tips, and sales tax. Congress temporarily increased the deductibility cap from 50% to 100% in an attempt to provided added relief to restaurants affected by the COVID-19 pandemic. Importantly, though, only meals provided by a restaurant qualify for the 100% deduction; all other meals remain subject to the 50% cap.
For the remainder of the year, businesses may fully deduct food and beverage costs provided by a restaurant so long as the following conditions are satisfied:
The meal was an ordinary and necessary expense in carrying on your trade or business;
An ordinary expense is one that is common and accepted in your trade or business.
A necessary expense is one that is helpful and appropriate for your business.
The expense was not lavish or extravagant under the circumstances;
Either you or your employee was physically present during the meal;
The meal was provided to a current or potential business customer, client, consultant, or similar business contact; and
In the case of food or beverages provided during or at an entertainment event, the food and beverages were purchased separately from the entertainment, or alternatively, the cost of the food and beverages was stated separately from the cost of entertainment on one or more bills, invoices, or receipts.
Example:
Sally owns a consulting firm. She invites a prospective client to dinner at a local restaurant. Sally orders an appetizer, two entrees, and drinks for her and the prospective client. Once finished, Sally pays the bill and keeps a receipt for her records. Sally can fully deduct the food and beverage expenses she incurred at dinner, as well as the sales tax and any tips.
IRS Recordkeeping Requirement
The IRS requires that you keep adequate records to substantiate each expense reported on your tax return, including business meal expenses. Adequate records generally consist of some form of documentary evidence, such as receipts, cancelled checks, bills, or invoices. For business meals, a receipt from the restaurant will suffice as documentary evidence so long as the receipt contains the following information:
The name and location of the restaurant;
The number of people served (if the receipt does not contain the number of people served, be sure to log this information in your books and records); and
The date and amount of the expenses.
Note, if there is a charge for something other than food or beverages, the receipt must clearly indicate the non-qualifying charge. The best practice, though, is to ask the restaurant to split the food and beverages charges on one receipt and all other charges on a separate receipt.
Exception for expenses under $75:
Documentary evidence is not required for expenses under $75, but it is highly recommended that you nevertheless keep and maintain receipts for these expenses or accurately track them on your books and records.
For more information, see the following resources:
About the Author
Attorney Jordan D. Howlette is the founder and managing attorney of JD Howlette Law, a civil litigation and business law firm focused on delivering high-quality legal services to individuals and businesses in a timely, cost-efficient manner. Prior to establishing JD Howlette Law, Jordan worked as trial attorney in the Tax Division of the U.S. Department of Justice, where he successfully litigated dozens of civil tax cases on behalf of the United States in federal courts around the country, securing millions of dollars in favorable judgments while also advocating for equitable justice. He is intimately familiar with the procedures, strategies, and processes of litigating cases from start to finish in court and with resolving multi-faceted civil disputes involving high-dollar amounts, complex statutory and regulatory provisions, and diverse parties from different jurisdictions.
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