Today, we have a major update for you – business meals are now 100% deductible as of the year 2021.
Yes, this big news for everyone because the old rule was that you could only deduct 50% of your business meals from your taxable income.
This is going to help you minimize your tax liability by writing off 100% of your business meals, which in turn, is helping the restaurant industry bounce back from a devastating recession.
Read on as we will unravel all the details on how to use this deduction.
Let’s go ahead and talk about this new deduction update.
The New Tax Deduction Update for Business Meals
According to a recent KPMG report, you can take a full deduction for business meals provided by a restaurant.
This is a 2x increase from the previous 50% deduction limit.
Now, these expenses must be paid or incurred during 2021 or 2022.
So for those of you filing your business taxes for 2020, you will not be able to take a full deduction on your tax return.
But as of right now, all of the business expenses you incur for restaurants this year are fully deductible when you file your tax return next year.
That’s right, so it might be time to start talking business over a nice meal.
With that said, there are some important things to keep in mind for this deduction.
Business Meals Tax Deduction: Things to Keep in Mind
1. What are business meals?
These are meal expenses while conducting business.
This includes meals during business meetings, business travel, and business events.
For example, if you held a business meeting with your business partner or employee over lunch, then that would be considered a business meal.
Likewise, if you take a potential client out for lunch to talk business, this would also be considered a business meal.
2. What are the IRS standards for this tax deduction?
According to a recent IRS publication, no deduction is allowed unless:
- such expense is not lavish or extravagant and
- you or an employee is present at the furnishing of business meals
So in other words, you probably don’t want to order that $200 steak from the most expensive restaurant in the city and then put it on the IRS to deduct.
And of course, an employee of your company should be present for these meals to prove that these are in fact, business meals.
3. Does this apply to entertainment expenses?
This full tax deduction does not appear to apply to entertainment expenses.
Or at least the Tax Act does not specifically extend the full deduction to entertainment expenses.
There used to be a time where this deduction was called the “Meals and Entertainment” deduction but this was eliminated in 2017 with the Tax Cuts and Jobs Act.
So if you’re planning on taking your clients golfing or something, we wouldn’t plan on using those expenses as a tax write-off.
So, there you go! Remember, if you need more guidance with your business tax preparation, tax planning, or tax filing, LYFE Accounting got you covered.
We offer various tax services so be sure to get in touch with us today at 470-240-1437.