New 100 Percent Meal Deduction

Since 1986, lawmakers have limited business meal deductions: first to 80 percent, and then to 50 percent (unless an exception applies).

But on December 27, 2020, in an effort to help the restaurant industry due to the COVID-19 pandemic, lawmakers enacted a new, temporary 100 percent business meal deduction for calendar years 2021 and 2022.

To qualify for the 100 percent deduction, you need a restaurant to provide you with the food or beverages.

The law requires only that the restaurant provide the food and beverages. You don’t have to pay the money directly to the restaurant. For example, you qualify for the 100 percent deduction if you order a restaurant meal that’s delivered by Uber Eats or Grubhub. In other words, you can dine in the restaurant, order takeout, or use delivery.

Key Point: You need a qualifying business meal for the 100 percent deduction.



Business Meal Rules

Rule 1: Your deductible business meals must be tax code Section 162 ordinary and necessary business expenses, and they must not be subject to disallowance under tax code Section 274.

Rule 2: Per IRS regulations, you may not deduct lavish or extravagant business meals. You are not likely to have this problem, regardless of what you spend. Here’s why:

  • In its publication on entertainment expenses, the IRS states: “meal expenses won’t be disallows merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.”
  • The Bloomberg BNA Tax Management Portfolio on entertainment deduction states: “No reported case to date has ever upheld a disallowance of a taxpayer’s travel, entertainment, or meal expenses on the ground that they were ‘lavish and extravagant under the circumstances.'”

Rule 3: You must be present at the business meal, and you must provide the business meal to a person with whom you could reasonably expect to engage or deal with in the active conduct of your business, such as a customer, client, supplier, employee, agent, partner, or professional advisor, whether established or prospective.


What’s an IRS-Defined Restaurant?

Remember, to qualify for the 100 percent deduction, you need a restaurant. The IRS recently provided definitions and examples of what is and is not a restaurant.

A restaurant is “a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” It is not any of the following:

  • Grocery stores
  • Specialty food stores
  • Beer, wine, or liquor stores
  • Drug stores
  • Convenience stores
  • Newsstands
  • Vending machines or kiosks

In general, the 50 percent limitation applies to business meals from the sources listed above.

The restaurant creates the 100 percent deduction.


Per Diem Problem

If you simply deduct a per diem meal expense for out-of-town business travel, or pay your employees a per diem, you can deduct only 50 percent of that expense.

If you deduct your actual expenses instead of the per diem, you can shift your expenses to being 100 percent deductible for the next two years.

Example: You are out of town overnight on business. You spend $10 for breakfast, $20 for lunch, $30 for dinner, and $5 for coffee during the day. You buy the

se items from locations that qualify as restaurants.

  • If you use the per diem method, you can deduct only 50 percent of the $56 per diem, or $28.
  • If you deduct your actual expenses, you can deduct 100 percent of the $65 you spent on food and beverages.

And because each of your meal expenses was under $75, you don’t face a tax record-keeping difference because you don’t need to keep receipts for business meals that are less than $75. However, you do need to make a record of them.



For 2021 and 2022, Congress gave businesses large and small an incentive to buy business-meal food and beverages from restaurants, because such purchases are 100 percent deductible.

Be sure every business meal you buy is from an IRS-approved restaurant location, which is a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether you consume the food or beverages on the business’s premises.

This new rule is another reason to move away from deduction a per diem for your business travel meals. You’ll almost always get larger tax deductions by deducting 100 percent of your actual restaurant expenses versus 50 percent of the per diem amount.



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