Tax Tip: 100% Business Deduction for Restaurant Food & Beverage in 2021

A special tax rule enables many businesses, including sole proprietors and independent contractors, to take larger meal expense deductions in 2021 than the IRS usually allows. Ordinarily, deductions for food and beverage costs cannot exceed 50% of the actual expense. However, the 2021 rule enables businesses to deduct 100% of the cost of food and beverages from restaurants in certain cases from January 1, 2021 through December 31, 2022.

The provision defines a restaurant as a business that prepares food or beverages for retail customers to consume on-site, pick up, or receive by delivery. This definition excludes most grocery and convenience stores, unless the store contains a separate restaurant or cafe area. In addition, facilities overseen or owned by the employer claiming the deduction, such as a workplace cafeteria, generally do not qualify as restaurants under this rule.

In order for meal expenses to qualify for this special deduction, the following conditions must be met:

• The business owner or an authorized employee is present when the food and/or beverages are provided.
• The expense is paid to a restaurant, based on the definition above.
• The food and beverage costs are not lavish or extravagant for the circumstances.

The activity must also meet all the standard criteria for business meal deductions. Your tax professional can help you determine whether your food and beverage expenses comply with IRS rules, and whether they qualify for a 100% deduction in 2021.