Don’t miss the 100% meals deduction

The Consolidated Appropriations Act, 2021, increased the business-meal deduction for the cost of food and beverages provided by a restaurant from 50 percent to 100 percent in 2021 and 2022 if certain conditions are met. The IRS on April 8 issued Notice 2021-25 to provide guidance on the higher limit for deducting business meals.

This temporary 100% deduction was designed to help restaurants, many of which have been hard-hit by the COVID-19 pandemic. Entertainment expenses, like a sporting event or tickets to a show, are still non-deductible. However, team-building activities for employees are deductible.

The notice explains when the temporary 100 percent deduction applies and when the standard 50 percent limit continues to apply for purposes of Section 274 of the Internal Revenue Code. 

The notice clarifies that the 100 percent deduction is available for food or beverages provided by a restaurant.  A restaurant does not include businesses that primarily sell pre-packaged food or beverages, not for immediate consumption. The notice specifically calls out grocery stores, specialty food stores, liquor stores, convenience stores, vending machines, and kiosks as examples of businesses likely to primarily sell pre-packaged items.

The 50 percent deductibility limit under Section 274(n)(1) “will continue to apply to the amount of any expense paid or incurred for food or beverages acquired from such a business,.

The IRS states that you must keep a record of your receipts and document attendee’s names, business, and dates in case of an audit.

If you have expenses abnormally higher than last year, this could be an area that is at risk for exposure for the IRS. Keeping documentation will help support an audit, should it happen. If you cannot substantiate your expenses, you will be required to pay back the tax, penalties, and interest.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com