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How 100% dining deduction helps us all, and what’s in new IRS guidance

Apr 22, 2021 | Entertainment Reopening Guide, Hotel COVID-19 Operations Guide, Reopening 2021, Restaurant Reopening Guide

The IRS issued guidance on April 8 allowing a 100% business deduction for food and beverages purchased from restaurants. The deduction will apply to expenses that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, and includes alcoholic beverages and meals that are not consumed on the premises.

This win for the hospitality industry was included as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and was enacted by the Consolidated Appropriations Act signed into law last December, but the eligibility requirements released in April clarify which purchases can be claimed for a 100% deduction.

The full guidance is available on the IRS website, but business owners should be happy to hear that the deduction is not limited to in-person dining. It does not exclude alcoholic beverages but specifies that lavish or extravagant expenses are not deductible. Purchases that are part of a company meal plan or that are deductible through other allowances are also not eligible.

What does this mean for the industry?
This deduction is intended to accelerate growth in the restaurant industry at the time it needs it most. As of April 14, 20% of Seattle’s restaurants had closed, and Washington state had lost 49,000 restaurant jobs since the beginning of the pandemic according to (2021). This move, proposed originally by South Carolina Senator Tim Scott, will help take dining one step closer to its pre-pandemic form as an integral piece of the American business relationship.

Hotels will also benefit from this move. While entertainment for personal reasons is not allowed to be deducted, food purchased at an entertainment or lodging facility is deductible with a separate receipt or invoice. This means that clients, employees, or prospective partners can meet at a hotel bar, adjoined restaurant, or entertainment facility and purchase food that is fully deductible. A business owner or employee does need to be present for the purchase to qualify, so vending machine or minibar purchases would not be eligible, but ordering food for delivery is eligible and can be consumed at any location.

While this increased deduction flew under the radar for many, it is a big move for tax policy. Businesses have only been able to deduct 50% of their meal expenses from their federal taxes since the 1980s, according to the Seattle Times (2021). If this change proves effective at revitalizing an industry that is sure to encounter more challenges, we may be having this discussion again in 2023 when the policy is set to expire.