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Editor's note: Updated in 2023 to reflect current legislation.
The Consolidated Appropriations Act (CAA) 2021 was introduced to provide temporary 100% deduction for expensing business meals purchased from qualifying restaurants after Dec. 31, 2020, and before Jan. 1, 2023. Under Notice 2021-25, the IRS defines qualifying restaurants as businesses that prepare and serve food and drinks for immediate consumption, whether on or off-premises.
Differences in 2021 CAA and 2018 Tax Reform
Different deductions were allowed during the Covid-19 pandemic as a result of the CAA. As of January 1, 2023, deductions have reverted back to where they were prior to 2021. The majority of business meals are now 50% deductible, and most entertainment expenses are not deductible at all.
|
Type of Expense |
Under 2018 Tax Reform ***Reinstated as of 2023 |
Under 2021 CAA *** No longer Valid |
|
Recreational or social activities for employees (e.g. summer picnic, holiday party, etc.) |
Fully deductible |
Fully deductible |
|
Business meals (e.g. meals for out-of-town travel, meals during business discussions with clients, etc.) |
50% deductible if not lavish or extravagant |
100% deductible if not lavish or extravagant and purchased from a qualifying restaurant |
|
Entertainment-related meals |
Nondeductible, unless separately stated from the cost of the entertainment – if so, 50% deductible |
Nondeductible, unless separately stated from the cost of the entertainment – if so, 50% deductible |
|
Sporting events, concerts, etc. |
Nondeductible |
Nondeductible |
|
De minimis items provided to employees at the office (e.g. coffee, snacks, water, etc.) |
50% deductible |
50% deductible |
|
Meals provided at the convenience of the employer at an on-site eating facility |
50% deductible |
50% deductible |
|
Goods, services, and facilities made available to the general public (e.g. grand openings, etc.) |
Fully deductible |
Fully deductible |
It is important to review how your meals and entertainment expenses are categorized. Long ago, the characterization between meal and entertainment expenses was irrelevant because the treatment was the same. It remains important to separate entertainment expenses from meal expenses. If you have further questions, you should reach out to your trusted tax planning advisor.
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