The IRS has released Notice 2021-63, which clarifies the temporary 100% business meals deduction for food or beverages from restaurants in 2021.
Normally, there is a limit of 50% on the amount that businesses may deduct for food or beverages. In December of 2020, the IRS released the Taxpayer Certainty and Disaster Relief Act, which added a temporary exception to the usual 50% limit. The exception raises the deduction to 100% for food or beverages from restaurants if the expense is paid or incurred in 2021 or 2022.
Special Rule for Per Diem Rates
For a taxpayer properly utilizing a per diem rate for meal expenses, the IRS provides a special rule that allows the taxpayer to treat the full meal portion of a per diem rate or allowance as being attributable to food or beverages from a restaurant beginning Jan. 1, 2021, through Dec. 31, 2022.
For a business to be able to claim 100% of the food or beverage expenses provided by a restaurant, the business owner or an employee must be present when the food and beverages are provided. If the food is not lavish or extravagant under the circumstances, the business can take the deduction. Taxpayers must maintain adequate records and other evidence to support the business purpose of the expense.
Eligible restaurants are defined as businesses that prepare and sell food to be eaten on or off the premises immediately. Businesses who sell pre-packaged food, including grocery stores and convenience stores are not included in this category. Employer-operated eating facilities do not meet the restaurant definition and will not apply.
Contact your accountant at The Innovative CPA Group if you have questions or would like assistance in reviewing your tax situation and determining how your business may benefit from the business meals deduction 2021 enhancement. Or fill out our contact form.