On April 8, IRS Notice 2021-25 was released announcing that the IRS would temporarily allow for a 100% deduction for expenses paid or incurred in 2021 and 2022 for food or beverages provided by a restaurant.
The IRS considers a "restaurant" to be a business that prepares and sells food/ beverages to customers for immediate consumption (regardless of whether the food or beverages are consumed on the business’s premises).
A restaurant does not include a business that sells mostly pre-packaged food/beverages not meant for immediate consumption. These include grocery stores; specialty food stores; beer, wine, or liquor stores; drug stores; convenience stores; newsstands; or a vending machines or kiosks.
Where do I report this in my account?
This is reported on your Schedule C as a General Expense > Meals (100%).
What expenses qualify?
Under the notice, the term “restaurant” means 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. A restaurant does not include a business that primarily sells prepackaged food or beverages not for immediate consumption, including a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk. The 50% limitation continues to apply to the amount of any deduction otherwise allowable to the taxpayer for any expense paid or incurred for food or beverages acquired from those types of businesses (unless another exception in Sec. 274(n)(2) applies).
The notice explained that an employer may not treat as a restaurant for Sec. 274(n)(2)(D) purposes:
- Any eating facility located on the employer’s business premises and used in furnishing meals excluded from an employee’s gross income under Sec. 119; or
- Any employer-operated eating facility treated as a de minimis fringe under Sec. 132(e)(2), even if that eating facility is operated by a third party under Regs. Sec. 1.132-7(a)(3).
The notice is effective for amounts paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023.