In general, travel and subsistence expenses are deductible when they are normal, necessary, and reasonable expenses associated with a business. However, for tax reasons, some meals and entertainment costs may be limited.
The Consolidated Appropriations Act (CAA), which came into force on December 27, 2020, contains several new relief provisions that can benefit your company.
The COVID-19 relief bill contains a temporary provision that allows 100% deduction for all meals purchased in a restaurant after December 31, 2020 through December 31, 2022. The inclusion of this provision is intended to help businesses support the restaurant industry.
For example, if you invited a customer to dinner on January 1, 2021, you can now deduct 100% of the costs (instead of 50% under the old law) for tax purposes.
It is important to note that other than removing the 50% limit on restaurant meals, the legislation does not change the rules on business meal deduction. All other existing requirements still apply. Be deductible:
• The costs must be normal and necessary.
• The food and drinks cannot be lavish and extravagant under the circumstances.
• You or one of your business representatives must be present when the food or drink is served.
• Must be with a prospect, customer, supplier, employee, agent, partner, or professional advisor who you can reasonably expect to be dealing with or dealing with your business.
While this new invoice won’t affect your 2020 tax return, the 2021 and 2022 savings offer a 100% discount on food and drink provided by a restaurant.
Here is a summary table of the most popular prints and how they have changed:
* If food or drink is provided during an entertainment activity, it must either be purchased separately from the entertainment or its cost must be reported separately on the invoice or receipt. Otherwise, food or drinks are not tax deductible for entertainment activities.
To accommodate these changes, we recommend that you create a separate account for:
• Entertainment account – for entertainment purposes only.
• Travel expenses should be separated from entertainment and meals. The travel expenses are 100% deductible, with the exception of meals when traveling.
• All meals purchased to take away or for delivery in a restaurant should be recorded in a separate account.
• Catering accounts should be broken down into categories to help your accountant maximize your deductions. For example, customer meals, employee meals, office snacks, etc.
Geffen Mesher Professionals will be happy to help answer any questions that may arise as you reorganize your spending to maximize your benefit under the CAA.
Ask? Contact: Tania Gitch, Chairman of Shareholders and Taxes, CPA