Business Meal Expense Update

By Rene Schaefer, CPA, MST

Introduction

Starting in 2018, under the Tax Cuts & Jobs Act (TCJA), all business meals were made 50% deductible. This included all employee, business, travel, and per diem meals, unless separately billed to a client. It also included meals incurred during entertainment (i.e. football games) if the meals were separately stated from the entertainment expense. The 50% meals limitation does not apply to employee parties. It was unclear whether employee office snacks (de minimis) and office meals were subject to the 50% limitation.

On October 9, 2020, the IRS issued final regulations that clarified the employee office snacks (de minimis) and office meals are subject to the 50% limitation. They are not 100% deductible.

Business Meal Expense Update

The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020. There were many significant new provisions, including individual stimulus payments, a second round of PPP loans, changing the deductibility of PPP related expenses, and a myriad of additional tax provisions.

One of the new tax provisions is that business meals provided by a restaurant will be 100% deductible after December 31, 2020 and before January 1, 2023 (for 2021 and 2022). This also includes meals for takeout and delivery.

Employee parties (holiday parties, annual picnics, summer outings, etc.) and expenses treated as employee compensation continue to be 100% deductible.

Entertainment expenses (sports events, golf outings, concerts, hunting trips, etc.) and skybox fees remain non-deductible.

We recommend meal expenses and entertainment expenses be separately broken out into different accounts so they can be easily identified for tax purposes.

Please consult your Clark Nuber professional or Rene Schaefer with any questions.

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