The IRS has recently provided guidance covering The Tax Payer Certainty And Disaster Tax Relief Act of 2020. The new legislation allows for a temporary 100% tax deduction for business meal expenses for food and beverages purchased from a restaurant. Typically, a business meal expense is 50% tax-deductible, so the 100% deduction is provisional for expenses incurred from January 1st, 2021, through December 31st, 2022. Continue reading to learn why your restaurant should be marketing to all nearby businesses regarding the valuable write-offs and how to do it successfully!
How does The IRS define a Business Meal Expense?
A Business Meal Expense is an expense for food and beverage purchased when the business owner, or at least one employee, is present and there is a business purpose to the meeting.
An example of a Business Meal Expense would be an owner or an employee meeting with a potential client, where food and beverage are purchased.
What types of Food Establishments are included in the term ‘Restaurant’?
The types of food establishments included in the term ‘restaurant’ are:
- A business that prepares and sells food or beverages to retail customers for immediate consumption. The critical part of this definition is “immediate consumption,” regardless of whether the food or beverages are consumed on the business premises
- Food ordered to-go from a restaurant qualifies
- A ‘restaurant’ does not include a business that primarily sells pre-packaged food or beverages, not for immediate consumption, such as a grocery store or a liquor store or any similar establishment
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How Can Restaurants Take Advantage of A Business Meal Tax Deduction?
This temporary two-year guidance could be a largely valuable boom of increasing sales.
- Work directly with your Catering Manager and start to put out feelers for what businesses surround your restaurant
- Market to every office building and surrounding business near your location
- Include advertising on all your tickets to make sure people are aware that there’s a current 100% deduction on all those business lunches
- Include signage in your restaurant inviting businesses to come in for a meal
What Are The Requirements to claim 100% Business Meal Tax Deduction?
The requirement to claim 100% Business Meal Tax Deduction is that the meal cannot be lavish or extravagant. The IRS does not have a current definition in the tax code for lavish or extravagant, so it’s imperative that taxpayers use their best judgment under the set of circumstances – watch the video to hear RASI Director of Compliance, Brian Smith’s example of lavish and extravagant.
Is Entertainment Considered Tax Deductible?
Entertainment is NOT tax-deductible under the Taxpayer Certainty and Disaster Tax Relief Act of 2020. In order to receive that 100% deduction for the meal expense, the food and beverage needs to be separately stated on the ticket.
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