In tax planning for 2022, it’s important to know what deductions you can take for your business so you can keep a record of certain spending activities. The business meal deduction is one to keep in mind when you are out there enjoying your favorite restaurants.
What the deduction looks like
In 2021, the business meal deduction was enhanced to a 100% deductible expense to help the restaurant industry which was heavily impacted by COVID-19. This was an incentive for business owners to eat out at restaurants for business-related events and capitalize on a 100% deduction for their 2021 taxes. Tax year 2022 will be no different. As it still stands businesses can deduct the entire cost of business-related food and beverages from restaurants, including taxes and tips.
What qualifies for the enhanced 100% deduction?
- A business owner or employee must be present when the food or drinks are provided
- Payment or billing for the meals has to occur between January 1, 2022 and December 31, 2022
- The meals must be from restaurants (businesses that prepare and sell food or drinks for immediate consumption whether it is on or off the premise)
- The expenses cannot be lavish or extravagant. This would be determined if the expense is reasonable based on the facts and circumstances of the meeting or event
- Transportation cost associated with the meal cannot be included
Business meals provided at entertainment events may be deducted if the purchase of food and beverages is separate from the entertainment and is recorded separately from the entertainment cost on at least one receipt or invoice.
Businesses that sell pre-packaged goods that are not for immediate consumption, such as grocery stores and convenience stores, do not qualify as restaurants for the enhanced deduction. Also, employer-operated eating facilities, even if they are operated by a third-party, do not qualify as restaurants.
Keep receipts of these meals as evidence as some of these expenses might not be allowed if there is not appropriate backup documentation. Having receipts that show the name, address, date and bill amount on hand is a good practice in case the IRS may need to see them.
Make sure to report these expenses to your CPA when it comes time to file your 2022 tax return, so you can take full advantage of this temporary enhanced deduction. If you have any questions on the business meal deduction, contact your Henry+Horne advisor today.