Sanford Stolar, CPA and Jessica Woolley, CPA
1.19.21 | Client Alert
The Tax Cuts and Jobs Act (TCJA) brought about new tax rules and regulations for tax deductions related to business meals and entertainment. The TCJA eliminated deductions for business entertainment and business meals included in the cost of the entertainment. Business meals generally remained limited to a 50% tax deduction.
The Consolidated Appropriations Act (CCA) temporarily increases the deductibility of certain business meals from 50% to 100%. The cost of these meals must be incurred or paid for from January 1, 2021 through December 31, 2022.
What type of business meals qualify for the increased deduction? In order to qualify for the increased deduction, the meals must be food and beverages provided by a restaurant. To be considered a deductible business meal you must also meet the following three requirements which were recently released in 2020:
- The expense is not lavish under the circumstances;
- The taxpayer or an employee of the taxpayer, must be present; and
- The meals must be provided to the taxpayer or a business associate of the taxpayer.
For purposes of number 3 above, a business associate is defined as “a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”
So, if I am a self-employed taxpayer and I take a perspective client out to lunch to discuss future business deals you’re telling me I can now fully deduct this meal? Yes!
Berdon Tip: Make sure you have separate general ledger accounts for business meals and entertainment. This will help in preparation of your 2021 and 2022 income tax returns. Entertainment expenses are still nondeductible under TCJA.
From the onset of COVID-19, the restaurant business has taken a huge hit. The CCA provision was put into effect to help encourage dining at and/or carrying out from restaurants. As we push forward into 2021 and 2022, keep in mind that when you are providing business meals – you can be helping our nation’s restaurants while receiving a full tax deduction!