How to maximize meal tax deductions for 2021

One of the best ways to meet and get to know vendors, distributors, or prospective clients is by organizing business meals. Not only is it convenient, but also it is an effective way to build lasting business relationships. The relaxed atmosphere of a business dinner may make your guests more receptive to listening than they would be in an office. Understanding how to hold productive dinner talks can increase the chances of successful business growth and profitability for both parties involved! These food-related meetings are also eligible for federal tax deductions.

Avoid these mistakes

When planning your business meal budget for the year, ask yourself, does this expense move your business forward? One mistake people can make on any potential deduction is to make a purchase only for the benefit of the tax deduction. Deductions may not always give more advantages than the cost. If you would have the meal without the deduction, then, by all means, take advantage. 

Don’t expect 100% of all food will be deductible for your business. Meals by yourself with family or friends do not qualify. The IRS expects to expand the number of auditors. It is invaluable to have clarity on which expenses are eligible for full or partial deductions and know the difference between them. 

Prepackaged foods provided for team members in the office, such as water, coffee, or snacks, receive a 50% deduction. There’s a lot of business out there in the world that sells prepackaged items. Grocery stores and specialty food stores are examples of businesses that sell this type of food! Convenience stores can also fit into what we’re talking about here–vending machines or kiosks come into play, too.

Entertainment-related meals are also eligible for a 50% deduction. Meaning, if you take out a client without any business discussion, it is deemed as an entertainment expense, not a business meal. Entertainment by itself is not deductible, such as sporting events or concerts. Dinner theater doesn’t qualify either because the cost of the meal is wrapped up in the experience. Meals must be a separate cost.

If you take out your spouse for a night on the town and discuss a client, unless your spouse is part of your business, the cost of the food does not qualify for a tax deduction.

Keeping a receipt is essential. It’s always better to have an itemized list of what was bought and for how much. So if auditing ever comes around, make sure these details are included when submitting paperwork, or you could be left without any expense deducted!

What is different for 2021?

In 2021, there is one significant change. In 2020, only 50% of the cost of business meals qualified for a tax deduction. Meaning if you went out to dinner and spent $500, only $250 would be tax-deductible. The exciting news is that, in 2021, if you spend $500 on a business meal, $500 is tax-deductible. That is a huge difference for businesses that rely on this strategy to grow their businesses. It is a function that not only supports companies but also boosts the traffic restaurants receive too.

Business meals are a powerful tool for growing your company and receiving tax deductions. The new IRS regulations provide clear guidelines on what counts as an eligible business meal expense, which is great news because there’s plenty of room to make mistakes here. Don’t think it won’t matter if you make a mistake – audits from the IRS are expected to increase.