Temporary 100% Deduction for Restaurant Food & Beverage
In a measure intended to help the restaurant industry recover from the effects of pandemic-related closures and other restrictions, COVID-relief legislation [i] passed in December 2020 included a provision allowing a temporary expansion of the deductibility of food or beverage provided by a restaurant. Ordinarily, business deductions for food and beverage expenses are generally limited to 50%. However, this legislation allows for a 100% deduction for business-related food and beverage expenses if the following conditions are met:
- The expenses are incurred during calendar years 2021 and 2022, and
- The food and beverages are provided by a restaurant.
In April, the IRS issued further guidance related to the temporarily expanded deduction. This guidance defines ‘restaurant’ as “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.” [ii] Businesses that primarily sell pre-packaged food or beverages are specifically excluded from this definition and would still be subject to the 50% deduction limitation. Under this guidance, the following businesses are not considered restaurants:
- Grocery stores,
- Specialty food stores,
- Beer, wine, or liquor stores,
- Drug stores,
- Convenience stores,
- Newsstands, and
- Vending machines or kiosks.
Additionally, any employer-operated eating facility or eating facility located on the premises of the employer and used for providing meals excluded from an employee’s gross income are not considered restaurants for the purpose of the 100% deduction.
Other rules pertaining to food and beverage deductions remain in place, including the following:
- The expense is not lavish or extravagant, and
- The taxpayer (or employee of the taxpayer) is present when the food and beverages are furnished.
Further, food or beverages provided at an entertainment facility or activity may only be deductible if they are purchased separately from the entertainment activity or the cost is separately stated on the invoice, bill, or receipt.
In light of this change, you should ensure that you capture qualifying restaurant expenses separately in your books by creating appropriate general ledger accounts or other tracking methods. This will enable you to easily identify the expense subject to the 100% deduction. Should you have any questions or need further direction, please contact your JTaylor tax advisor.