Are Meals Fully Deductible in 2022?

In 2022, temporary changes to business meal deductibility were implemented to provide economic relief. While business meal expenses are generally subject to a 50% deduction limit, a temporary exception allowed certain business meals to be 100% deductible during 2021 and 2022. This measure supported the restaurant industry during a challenging economic period.

Understanding Meal Deduction Rules

Businesses can typically deduct 50% of qualifying business-related meal costs. This 50% limitation applies to most business meals because meals inherently contain a personal element, even in a business context.

However, the Consolidated Appropriations Act, 2021, introduced a temporary provision allowing a 100% deduction for food or beverages provided by a restaurant. This temporary rule applied to expenses paid or incurred after December 31, 2020, and before January 1, 2023. The intent was to stimulate economic activity and benefit restaurants.

Qualifying for the 100% Deduction

To qualify for the temporary 100% deduction in 2022, specific criteria had to be met, primarily regarding the food source and business purpose. The meal had to be purchased from a “restaurant,” defined by the IRS as a business preparing and selling food or beverages to retail customers for immediate consumption. This included food consumed on or off the premises, encompassing takeout and delivery.

The meal expense also needed to be an ordinary and necessary business expense. It could not be lavish or extravagant. The taxpayer or an employee had to be present when the food or beverages were provided, and there needed to be a clear business purpose, such as discussing business with a client or other business contact.

Non-Deductible Meal Expenses

Even with the temporary 100% deduction for qualifying restaurant meals, several meal-related expenses remained either non-deductible or subject to the standard 50% limitation. Expenses for entertainment, amusement, or recreation were generally non-deductible.

Meals not purchased from a qualifying “restaurant” typically remained subject to the 50% deduction rule, if deductible. This included food or beverages from grocery stores, convenience stores, or employer-operated eating facilities.

Essential Recordkeeping

Proper recordkeeping is fundamental for substantiating business meal deductions, whether 50% or 100% deductible. Taxpayers must maintain adequate records to prove the amount, date, and place of the expense. Documentation should also clearly state the business purpose of the meal and the business relationship of the persons involved.

For expenses over $75, receipts are generally required, but it is advisable to keep documentation for all meal expenses. This detailed recordkeeping is crucial for accurately claiming deductions and can prove invaluable in the event of an audit. Without sufficient documentation, deductions may be disallowed, leading to additional tax, penalties, and interest.