Additional Guidance on 100-Percent Deduction of Meals

Updated - Appetite for Deduction: Additional Guidance on 100-Percent Deduction of Meals

Background / Prior Information
In February 2021, we published a blog article, Appetite for Deductions: CAA and Meals & Entertainment, that provided a summary of the changes to tax deductions for business meals included in the Consolidated Appropriations Act (CAA).

The key takeaway: Effective for amounts paid or incurred after December 31, 2020, and before January 1, 2023 (NOTE the original article incorrectly stated this was “for tax years beginning after December 31, 2020, and before January 1, 2023”), the full costs of meals provided by a restaurant, that have a business purpose, are now 100% tax deductible.

Important: Helpful Additional IRS Guidance
On November 16, the IRS issued Notice 2021-63 and provided further guidance regarding the temporary 100% meals deduction for 2021 and 2022. The notice indicates that taxpayers may treat the meal portion of a per diem rate or allowance paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, as being attributable to food or beverages provided by a restaurant. This applies to taxpayers that use an allowable method, such as “per diem payment”, of treating a specific amount as paid or incurred for meals while traveling away from home, in lieu of substantiating the actual cost of the meal.

The notice allows taxpayers to benefit from the “provided by a restaurant” exception for the cost of providing meals portion of a per diem without having to demonstrate that the meals were purchased from a restaurant. This is a meaningful difference for industries that rely heavily on per diems for business travel.

Please contact your Herbein team tax consultant at info@herbein.com. Article contributed by Emily C. Nolt.