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Changes to Meals Deductions

In order to encourage patronage to restaurants in 2021, the IRS has revised the meals deduction from 50% to 100% this year.

Note that the revision only applies to meals purchased at restaurants. The IRS refers to the term restaurant as follows:

"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. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. "

Prior rules for deductions still apply to non-restaurant expenses.

All meal deductions need to meet the following requirements:

  1. Must be present at the time of purchase

  2. Purchase cannot be lavish or extravagant

  3. Ordinary and necessary for business

Documentation recommended for each deduction:

  • Who: Who was present?

  • What: What was purchased?

  • When: When was the purchase?

  • Where: Where did you go?

  • Why: Purpose of the meal?

  • How: How much did it cost?

Generally the IRS will only require receipts for items over $75, but it is a good idea to try and record as many of them as possible and not make a habit of missing receipts. QuickBooks and many other accounting software now offer mobile options that only require a quick picture of the receipt for it to be recorded into your books.

Regarding the documentation for each item, it may seem overwhelming. But just remember, you only need to answer the questions of Who, What & Why, as the receipt image will most likely account for the other questions. I recommend using the memo field in your expense transaction and entering something like below:

Who: Sierra Johnson

What: Lunch @ Italianos

Why: Marketing meeting

The best practice is to review your expenses on a regular basis to enter this information so you don't forget the details, but also because the IRS recommends you enter it within a reasonable time since the purchase.

Last but not least, keep in mind that if you have an expense that contains both meal and entertainment expenses, only the meal portion is deductible. A good example of this is if you visit a bowling alley and discuss business with a client. You both enjoy a game and share some drinks and nachos. Only the food/drink portion of the bill is deductible. If you get your receipt and the food was part of a bundle for the bowling game, meaning there is not a separate line item on the receipt, then you cannot deduct any of the expense.

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