Owning a business does come with some perks, especially during tax season. One of the best perks is writing off some of your business meals. Over the years the IRS has changed what can and cannot be deducted regarding business meals and entertainment and it can be a bit hard to figure out what the current laws are and how they apply to you. Don't fret though! We are here to help navigate this specific deduction going into the current tax season and the 2023 year.
Tax Cuts and Jobs Act
In 2017, the Tax Cuts and Jobs Act was passed and some of the laws regarding meals and entertainment deductions were changed. Before 2017, businesses actually had a lot more flexibility when it came to deductions. Many businesses could deduct 50% of box seats to sporting events, Disney tickets, memberships, business meals, etc., and claim it as an entertainment deduction. When the Tax Cuts and Jobs Act was enacted it eliminated the deduction for any expenses related to activities considered entertainment, amusement, or recreation. However, the law did not change in terms of being able to deduct up to 50% of business meals. Business meals became one of the only remaining tax benefits for businesses going forward. The 50% deduction remained the standard for business meals until 2021 when the Covid-19 pandemic changed the rules for a few years.
The Consolidated Appropriations Act of 2020
As part of the Covid relief efforts, an act called The Consolidated Appropriations Act of 2020 was passed to provide some relief to taxpayers—and to help support small business restaurants—including temporarily changing the meal deduction percentage from 50% to 100% for the 2021 and 2022 tax years. This benefit was mainly intended as a form of stimulus for restaurants, many of which were hit extremely hard during the pandemic. The deduction allowed businesses to deduct the entirety of their business meals IN restaurants but did not apply to pre-packaged food, food bought in grocery stores, vending machines, etc. Thus, as you are preparing your taxes for the 2022 year don't forget to report all business meals as 100% deductible because this benefit extended to every restaurant expense through December 31, 2022. However, sadly, starting January 1st, 2022, all business meals are reverting back to the 50% deduction rate. So, be sure you aren’t going into restaurants this coming year thinking you’ll still get that same awesome, full-blown deduction!
Remember that meals are still a great way to get tax breaks throughout the year. Even though your business meals going forward are reverting back to the 50% deduction rate, it doesn't mean you should stop having business meals! 50% is still a good amount and an easy way to bless clients and employees throughout the year while also getting a tax benefit for your business.
THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. EVERY SITUATION IS DIFFERENT & IS FACT-SPECIFIC. A proper legal analysis is necessary based on your location and contract. Consult an attorney in your home state for advice regarding your contract or specific legal situation.