The Taxpayer Certainty and Disaster Relief Act of 2020 increased the business meal deduction for food or beverages provided by a restaurant to 100% for years 2021 and 2022. But there was some confusion surrounding what a restaurant is and is not. In response, the IRS has issued Notice 2021-25 to clarify the definition of “restaurant.” We’ve summarized these clarifications below.

  • The deduction for the food or beverage is still required to be a business meal that is not lavish or extravagant under the circumstances, and the taxpayer or an employee of the taxpayer is required to be present for the meal.
  • A restaurant is a business that prepares and sells food or beverages to retail customers for immediate consumption. The food or beverages are not required to be consumed on the premises.
  • The definition of ‘restaurant‘ specifically excludes a business that primarily sells pre-packaged food or beverages, not for immediate consumption. Establishments that are not considered restaurants for this purpose include:
    • grocery store
    • specialty food store
    • beer, wine or liquor store
    • drug store
    • convenience store
    • newsstand, vending machine or a kiosk
  • This provision also excludes an eating facility on an employer’s business premises that furnish meals excluded from employee’s payroll and an employer‐operated eating facility treated as a fringe even if it is operated by a third party.

Tax Planning Tip

To qualify for the 100% deduction, employers should maintain their receipts and support that the expenses are related to a restaurant. We recommend tracking the meals that qualify as you go throughout the year or recording them to a 100% deductible meals account so that the information is easy to gather. Your tax preparer will specifically inquire about meals that are 100% deductible, 50% deductible, and non-deductible at the end of the year.

If you have questions on how this change in deduction affects your tracking or would like to discuss best practices for your tax strategy, BMF Advisors are available to discuss your situation.

About the Authors

John E. Jenkins
CPA
Partner, Taxation Services
Melissa G. Dunham
CPA, MTax, MBA
Senior Manager, Taxation Services

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