Are business meals deductible in 2021? A recent article on the topic of small business taxes and employee payroll issues raised an interesting question: “Is it deductible in 2021?” The amendment to current tax law makes it so that if your company serves food during business operations, it may be deducted. However, the amendment only applies to taxable business meals and does not include any lunches your company holds for personal use or other similar situations.
Under the new tax code, businesses can deduct a tax-deductible executive dinner or meeting from their income taxes if they meet one of three requirements. First, the meals must be part of official business proceedings. Second, the formal dinner or meeting cannot be held at a private residence or even if the taxpayer is not an employee of the business. And third, the taxpayer cannot charge any price for the meal.
The three requirements are designed to help the business meals industry stay viable. It costs employers more money to provide employees with lunches that are not considered part of their business operations. They also cannot charge exorbitant prices for meals served outside of official business operations. This amendment will likely force companies to reevaluate their costs and revenue for business meals in the future.
Currently, only a few states have laws that apply to the provision of business meals. Those states include California and Connecticut. However, the federal government could soon enact a similar provision that affects tax deductions for employer-provided meals taken outside of official business operations. That means that small, medium, and large businesses will need to look into the applicable state laws before taking deductions.
Even if the IRS does not have plans to amend the tax code soon, there is good reason to expect it will be revisited before too long. The tax reform package passed by Congress in the last year offered many carve outs for business owners. Those include provisions that would allow the self-employed to deduct their own health insurance premiums and provide a larger tax credit for home mortgage interest. Additionally, many business owners are concerned that current law allows employers to deduct a portion of their workers’ taxes even if those employees have not been asked to pay that amount during the year.
Those concerns may prove legitimate. The IRS may consider an employee’s health insurance premium payments an allowable tax deduction if they are related to the company’s operation. Similarly, home mortgage interest on a business loan may be applied to the actual cost of the property, rather than the employee’s share. While employers may hope that these changes will ease their burdens, small business owners may wish to consult with a tax professional to determine if deductions for meals taken outside of the usual business operation are deductible in 2021.