Due to the tremendous damage to the restaurant industry during the Covid Pandemic, before President Trump left office he signed into law the 100% write-off for dining out in 2021 and 2022!!
Yes…that’s right! For only two years, 2021 and 2022, business owners incurring a valid business meeting out of the office, or ‘take out’, (supporting a local business for preparing food), can write off 100% of the dining expense.
However, remember this 100% deduction is for ‘prepared food’ by a restaurant for a valid business meeting, OR while a business owner is traveling for business. The water cooler, coffee and treats in the office picked up at the grocery store are still limited to a 50% deduction.
Now if you’re a little confused at this point, or have questions, you’re not alone. Things changed in 2018 under the Tax Cuts and Jobs Act. Then to make it more complex this special 100% rule came into play for ‘restaurant prepared food’.
First, let’s examine the ‘types’ of meals. I’ll try and ‘set the table’ with 6 main options to consider and what you should be tracking in your books.
100% write-off in 2021 and 2022 when eating at a restaurant or picking up ‘take-out’.
50% if you stop at the grocery store and pick up some steaks and cook them up at your home for your important meeting. Congress is trying to help the restaurant industry with this special rule for two years – not grocery stores.
Remember, if you decide to do some ‘entertainment’ with the meal, make sure you pay for the food separately. Hopefully, we’ll see the entertainment expense come back into play in the future (not what the IRS wants, but only if we could wish it so).
Meals while traveling outside of a normal commute in your business are still deductible. You don’t have to have lunch with a customer, client, business partner or vendor.
Again, even if you’re by yourself (but validly traveling for business) you receive a 100% write-off in 2021 and 2022 when eating at a restaurant or picking up ‘take-out’.
It’s only 50% if you stop at 711 and pick up a loaf of bread and some peanut butter and jelly to save a few bucks. It’s still a write-off, but because it wasn’t ‘prepared’ for you by a restaurant, it would be limited to 50%.
Remember, these are dining expenses while traveling for legitimate business meetings. Examples would include education or training conferences, or a Board of Directors retreat, checking on a rental property, a business location, or even going to meet a prospect or vendor. This includes food, tip, and even the bar tab.
Again, 100% write-off in 2021 and 2022 when eating at a restaurant or picking up ‘take-out’.
50% if you go to Costco and pick up hamburgers and hot dogs and grill them in the parking lot for the employees. Remember, Congress is trying to help the restaurant industry with this special rule for two years – not grocery stores.
The interesting question is what about bagels on Wednesday or Donuts on Monday? I would argue that since they were prepared by a bakery or deli it would qualify for the 100% deduction…but maybe I’m just a sucker for some good ‘carbs’.
By definition, I don’t think these are going to be items prepared by a restaurant. As such, it’s regrettable because these types of items used to be a 100% deduction prior to passage of the Tax Cuts and Jobs Act (TCJA). However, they are now limited to 50%.
These are expenses such as the coffee maker, water cooler, granola bars and snacks for the employees.
For those of you with a home office, I’m talking about expenses for your employees. I am NOT talking about you, your family, or other owners of the business.
Yes, some types of food expenses survived. They are still 100% deductible, even if it was food not prepared by a restaurant! Business owners are allowed to deduct the food and costs for a team building event, or a year-end party exclusively for employees and not the owners of the business, or highly compensated employees. Consider this an experience for your rank and file employees. (IRC Section 274(n)(2) 2018; 274(e)(4) 2018).
These are also a type of food expense that survived even if it was food not prepared by a restaurant. Under the 2018 TCJA and are still 100% deductible! The following are situations where food is paid for:
In light of these complicated rules and frankly confusion, it’s critical than ever to track your expenses carefully in order to allocate and deduct them in the proper manner come next spring. I highly recommend creating bookkeeping categories/expenses in QuickBooks for these 6 types of meal expenses. This way at the end of the year you can better strategize with your accountant, substantiate your expenses, AND make sure you take the proper percentage (%) write-off for the right type of expense.
By all means, even with these major tax-law changes, dining, an event, and office food can add up to be a significant expense on your books. Keep good track of your food expenses and keep several categories in your QuickBooks. It’s not a big deal to do so. It will give you an important opportunity for a discussion at tax-prep time about writing off dining and food.