The Consolidated Appropriations Act of 2021 made a temporary, but significant change to the deductibility of business meals provided by a restaurant. The Act increased the deduction from 50 percent to 100 percent for restaurant food and beverage expenses incurred in direct relation to business activities for 2021 and 2022. This temporary increase in deductibility offers you an opportunity to help support local businesses that have been hit hard financially by shutdowns and other restrictions as a result of the pandemic while your own business benefits from a full tax deduction.
A restaurant is defined as a business that prepares and sells food or beverages to retail customers for immediate consumption. Restaurant meals can be consumed on the premises or can be ordered for take-out. Grocery stores and convenience stores that sell pre-packaged food or beverages would not qualify and would be subject to the 50 percent deduction limitation. All entertainment, amusement or recreation expenses remain 100 percent not deductible. However, any food and beverages provided at an entertainment activity that are separately stated on the bill, invoice or receipt maybe partially deductible.
As we are now past the half-way mark for 2022, this is the ideal time to review your accounting to make sure that you are separating expenses into the proper categories. Businesses often account for meals and entertainment expenses together in one general ledger account, but for easier tracking of which expenses are and are not deductible, the best practice is to separate them into different general ledger accounts.