The IRS released guidance explaining when the temporary 100% deduction for restaurant meals is available and when the 50% limitation on the deduction for food and beverages continues to be applied.
In general, a deduction for any expense for meals (food or beverages) is limited to 50% of the amount spent. However, the Consolidated Appropriations Act 2021 removed that limitation for amounts paid or incurred after December 31, 2020 and before January 1, 2023 for food or beverages provided by a restaurant.
Under the notice, “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. A restaurant does not include a business that primarily sells prepackaged food or beverages not for immediate consumption, including a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. The 50% limitation continues to apply to the amount of any deduction otherwise allowable to the taxpayer for any expense paid or incurred for food or beverages acquired from those types of businesses.
The notice explained that an employer may not be treated as a restaurant:
- Any eating facility located on the employer’s business premises and used in furnishing meals to employees.
- Any employer-operated eating facility, even if that eating facility is operated by a third party.
The notice is effective for amounts paid or incurred after December 31, 2020 and before January 1, 2023.