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 more questions, you’re not alone. Things changed in 2018 under the Tax Cuts and Jobs Act, and then to make it more complex this special 100% rule came into play for literally ‘restaurant prepared food’.
First, let’s examine the ‘types’ of meals and I’ll try and ‘set the table’ with 6 main options to consider and what you should be tracking in your books.
Type 1: Dining with a Prospect or Important Client
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.
And 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).
Type 2: Dining While Traveling
Meals while traveling outside of a normal commute in your business are still deductible. You actually 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.
Type 3: Regular Meals with Employees or Staff Meetings
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’.
Type 4: Food in the Office Kitchen
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.
And by the way, for those of you with a home office, I’m talking about expenses for your employees, NOT you, your family, or other owners of the business.
Type 5: Year-end parties for employees
Yes, some types of food expenses survived and 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).
Type 6: Event or Marketing Presentation
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! These are situations where food is paid for in some of the following situations:
- Snacks, food or treats at an ‘open house’ to show a home if you are a realtor
- Snacks or food at a promotional event for customers or prospects
- Food at an event or workshop in which patrons paid to attend and the food was part of the cost to attend
Substantiating your expenses
In light of these more complicated rules and frankly confusion, it’s more 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.
10 Takeaways and examples:
- You travel to a conference for your profession and pay for food along the way and during the conference- 100% write-off if Restaurant, 50% if Grocery Store
- You travel to a business conference and while there take out a customer of yours, discuss business and close a deal- 100% write-off if Restaurant, 50% if Grocery Store
- You pay for a required employee meeting at the office and discuss business operations- 100% write-off if Restaurant, 50% if Grocery Store
- You go out to lunch with an employee for their birthday and flip the tab- 100% write-off if Restaurant, 50% if Grocery Store
- You and your business partner go to lunch to talk important business- 100% write-off if Restaurant, 50% if Grocery Store
- You and your board of directors, or board of advisors for your business travel to a location outside of a normal commute for a quarterly or annual meeting in which you take notes and have a business discussion- 100% write-off if Restaurant, 50% if Grocery Store
- You take a prospect golfing, to a spa, or baseball game, have lunch during or after, talk business and close their future business with your company. No write-off for the activities, but meals paid for separately are 100% write-off if Restaurant, 50% if Grocery Store
- You own a restaurant or convenience store or farmers market and sell food, products or prepared meals. All food is a 100% deduction as a cost of goods sold.
- You hold an event and charge attendees for a conference, training or experience that includes the meal as part of their registration. 100% write-off
- You hold an open house, event or presentation free to the public, and provide snacks, drinks, and food for the attendees. 100% write-off.
Bottom line, even with these major tax-law changes, dining and or 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 and it will give you an important opportunity for a discussion at tax-prep time.
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the PodCasts “The Main Street Business Podcast” and “The Directed IRA Podcast”, and the author of “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”, as well as several other well-known books. He is also the CFO of Directed IRA Trust Company, and a senior partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP, and the accounting firm K&E CPAs, LLP.