April 13, 2021
Is My Dinner Deductible? IRS Clarifies.
The Internal Revenue Service released clarifying guidance on April 8th on the temporary 100% deduction for food and beverages provided by a restaurant, applicable to expenses paid or incurred after December 31, 2020 and before January 1, 2023. The deduction is normally limited to 50% of the expenditure. The Consolidated Appropriations Act of 2020 provides a temporary exception to the 50% limitation for food or beverages provided by a restaurant, as long as the business owner (or an employee of the business) is present and the expense is not lavish or extravagant.
IRS Notice 2021-25: Defining A Restaurant
A business that prepares and sells food or beverages to customers for immediate consumption, either on or off the premises, is considered a restaurant.
Businesses that are not considered “restaurants” for the purpose of the exemption are businesses that primarily sell prepackaged food or beverages not for immediate consumption, including:
- grocery stores,
- specialty food stores,
- beer, wine, or liquor stores,
- drug stores, and
- vending machines.
Additionally, an eating facility located on the business premises is not treated as a restaurant, even if the facility is operated by a third party. Further, an eating facility located on the business premises and used to furnish meals that are excluded from an employee’s gross income, or an employer-operated eating facility treated as a de minimis fringe benefit are also excluded from the restaurant definition for deductibility purposes.
100% Deduction Benefit
This benefit will expire on December 31, 2022 and any expenses for food and beverages that do not fit within these guidelines will continue to be limited by 50%.
If you have any questions on the guidance contained in Notice 2021-25, please contact our tax department for assistance.