Redpath Insights

Meals and Entertainment Deduction in 2021

by Travis Naylor, CPA
July 13, 2021 - Earlier this year, the Consolidated Appropriations Act (CAA) 2021 introduced a temporary 100% deduction for expensing business meals purchased from qualifying restaurants after Dec. 31, 2020, and before Jan. 1, 2023. Under Notice 2021-25, the IRS defines qualifying restaurants as businesses that prepare and serve food and drinks for immediate consumption, whether on or off-premises.

Exceptions to 100% Deduction for Business Meals

Certain meal expenses continue to be only 50% deductible, including:

  • Food and beverages not for immediate consumption, including those products purchased from grocery, specialty food, beer, wine, or liquor stores, pharmacies, drug stores, convenience stores, newsstands, vending machines, or kiosks.
  • Meals provided at eating facilities located on the employerโ€™s business premises which are used in furnishing meals excluded from an employeeโ€™s gross income.
  • Meals provided at employer-operated eating facilities which are treated as a de minimis fringe under Sec. 132(e)(2), even if that eating facility is operated by a third party.

Entertainment Expenses

  • Anything considered to constitute entertainment, amusement, or recreation is nondeductible, including the cost of facilities used in connection with these activities. This is unchanged from 2018 tax reform.

Changes to the deductibility of meals and entertainment expenses following the CAA:

Type of Expense

Under 2018 Tax Reform

Under 2021 CAA

Recreational or social activities for employees (e.g. summer picnic, holiday party, etc.)

Fully deductible

Fully deductible

Business meals (e.g. meals for out-of-town travel, meals during business discussion with clients, etc.)

50% deductible if not lavish or extravagant

100% deductible if not lavish or extravagant and purchased from a qualifying restaurant (see above)

Entertainment-related meals

Nondeductible, unless separately stated from the cost of the entertainment โ€“ if so, 50% deductible

Nondeductible, unless separately stated from the cost of the entertainment โ€“ if so, 50% deductible

Sporting events, concerts, etc.

Nondeductible

Nondeductible

De minimis items provided to employees at the office (e.g. coffee, snacks, water, etc.)

50% deductible

50% deductible

Meals provided at the convenience of the employer at an on-site eating facility

50% deductible

50% deductible

Goods, services, and facilities made available to the general public (e.g. grand openings, etc.)

Fully deductible

Fully deductible

It is important to review how your meals and entertainment expenses are categorized.  Long ago, the characterization between meal and entertainment expenses was irrelevant because the treatment was the same. In light of 2018 tax reform, and now the 2021 CAA, it remains important to segregate entertainment expenses from meal expenses. If you have further questions, you should reach out to your trusted tax planning advisor.

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Travis Naylor, CPA

Travis Naylor, CPA

Travis Naylor is a manager in the business tax service area at Redpath and Company. He provides proactive communication regarding new legislation that will impact clients, makes recommendations for amending tax returns to claim tax credits, and provides tax planning services throughout the year. He has been with Redpath and Company since 2014.

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