Keep Those Receipts Now That Business, And Business Meals, Are Back

Two helpful things happened while we were all home working in our sweats and tees. Now that some of us are venturing back to the office and trying to reconnect with our business associates, the government changed our business dining rules, mostly for the good.

First, the Taxpayer Certainty and Disaster Relief Act of 2020, enacted in 2021, temporarily repeals the 50 percent business meal limitation and allows 100 percent deduction of meals purchased for a business purpose in a restaurant for 2021 and 2022. The IRS provided a notice of what qualifies as a restaurant, which is essentially what we all think it is — “a business that prepares and sells food or beverages to retail customers for immediate on-premise and/or off-premise consumption.” It is not a “to-go” meal from a grocery store. If you want to study the definition check out IRS Notice 2021-25.

Second, while we were Zooming the IRS released Final Regulations giving guidance for deducting business meals. Since John F. Kennedy was President, business meals have been considered an area of abuse and several presidents have pushed for management of these business expenses; Jimmy Carter even tried to get rid of the three-martini lunch. Over the years business meal deductions have been heavily regulated, and they remain one of the most litigated expenses in tax court.

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“Over the years business meal deductions have been heavily regulated, and they remain one of the most litigated expenses in tax court.”

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In October 2020 the IRS Final Regulations attempted to clarify what is deductible as a business meal, but first they had to “uncouple” the entertainment portion of the Tax Cuts and Jobs Act (TCJA) as it eliminated entertainment expenses as a deduction. There are now three requirements to qualify as a business meal:

1.           The meal isn’t lavish or extravagant under the circumstances.

2.           The taxpayer or an employee is present at the furnishing of the food.

3.           The food or beverage is provided to a taxpayer or a business associate.

In the case of food and beverages provided during entertainment, the food must be purchased separately. Essentially, you can buy your client a hot dog at a baseball game as long as you keep the receipt!

The rule loosened up a bit by removing the requirement of “active conduct of business” and created the definition of a “business associate.” Like the restaurant definition earlier, a business associate is what you assume them to be: a person with whom the taxpayer could reasonably expect to engage in business.

Substantiate or No Deduction

The problem with these deductions when they come up in audit is that clients generally don’t keep good records, or they misplace receipts. In the current world of cell phone accounting there is often little evidence to prove the business purpose of the expense. We recommend the following best practices to reduce the risk of the IRS adjusting your tax liability:

1.           Always keep the meal receipt from the restaurant, as the credit card statement is not enough evidence for an IRS auditor. Simply note on the back of the receipt who you dined with and the business purpose, such as “we shared leads” or “we discussed a new project.” You don’t need much except the who and why, as the receipt has the date, amount, and location of the business meal.

2.           Remember that a business meal while traveling is only deductible if you stay overnight. This rule stems from a court case referred to as the “Sleep or Rest Rule.” A hotel statement is required to document any applicable deductible charges, as a line on your credit card statement from Hilton or Marriott is not adequate backup for an audit.



Business meals deducted as business expenses are almost always examined when returns are selected for audit, so keeping contemporaneous records from the time the expenses are incurred are essential for a good audit outcome. Please reach out to your Hood & Strong advisor with any questions, and here’s to many tax-deductible business meals ahead!

Contact AEIS Today

Contact us today and let us know what challenges you need help with or if you would like to be connected with George Paulsen and his team of tax advisors and CPAs at Hood & Strong, LLP to see how the tax-deductible business meals will impact your business.

This post was originally published in Hood & Strong’s Newsletter.

Disclaimer: Any information related to compliance or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.