After Covid-19, the landscape for how businesses were managed has changed, a lot. Before Covid, startups did a lot of networking and "wining and dining" to get clients but in 2020, that all changed. The IRS has finally changed its Business-Meal Deduction allowance, but it won't stay in place forever. Below, we summarize the changes and the link to the Notice for your review.
On April 8, the IRS issued Notice 2021-25 called the Consolidated Appropriations Act, 2021. In this new notice, the IRS has increased the allowable business-meal deduction for the cost of food and beverages provided by a restaurant from 50% to 100% for the year 2021-2022, but they must meet certain conditions.
This notice is temporary, and only for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023 so keep accurate records and receipts.
The Notice further explains that the business may claim 100% of the food and beverage deduction only if:
Such expense is not lavish or extravagant under the circumstances; and the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages.
The Notice also states that the 100% allowable deduction only applies to meals occurring in a restaurant.
However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.
Use common sense here...think sit-down meals versus drive-thru. In the drive-thru, convenience store scenario, the 50 percent meal deduction would still apply. When in doubt, classify the meal under Meals & Entertainment.
How do you do that?
Since this is a temporary allowance that the IRS is offering, our suggestion is to create a Chart of Account called "Business Meals" and only use that Chart of Account for restaurant meals. Keep your Meals and Entertainment Account for your other meals, ie: drive-thru's, coffee runs, quick bite type of meals.
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