Congress Makes Business Meals Temporarily 100% Deductible

When Congress passed the Tax Cuts and Jobs Act (TCJA) in 2017, it significantly limited the tax benefits available to companies by eliminating the deduction for entertainment expenses and reducing the deductible amount for certain types of meals (M&E). Currently, business meals are generally only 50% deductible and entertainment expenses are fully disallowed for tax purposes.

The latest emergency coronavirus relief package, the Consolidated Appropriations Act of 2020 (CAA) passed on December 21, 2020 reverses some of the TCJA M&E changes and provides a temporary full deduction of certain business meals. With this new legislation, meal expenses incurred after 12/31/2020 and before January 1, 2023 could be 100% deductible.

The Act expands Internal Revenue Code Section 274 to allow a full deduction for “food or beverages provided by a restaurant.” There is no clarity on whether this applies only to in-restaurant meals or if it would also apply to catered or takeout meals. There is also no clarity on whether this applies only to business meals with clients, or if it would also apply to internal business meals.

Aprio’s Position

Given the drastic decrease this year to in-restaurant dining, as well as various restrictions on restaurant operations across different jurisdictions due to the COVID-19 pandemic, we believe the intent of this change allows for the interpretation that the full deduction would apply to in-restaurant meals as well as catered and takeout meals – for both internal business meals, such as trainings or working meals, and external business meals, such as meals with clients or vendors.

Bottom Line

Many businesses took a hit when the rules for M&E deductions changed in 2017. While the new legislation does not restore the deduction for entertainment expenses, it does allow taxpayers to temporarily recoup tax benefits related to some meal expenses by allowing a 100% deduction for expenses incurred in 2021 and 2022.

If your business has historically benefited from meals and entertainment deductions, or if you think you have potentially eligible deductions now, it is best to work with a knowledgeable tax advisor.

Aprio has been closely following the changes to these deductions, and we’re prepared to help you maximize your benefit. Contact Meredith Kowal, Partner, at meredith.kowal@aprio.com for more information.