The New Dining Write-off: Covid Relief Gives You Something to Whet Your Appetite
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Now that President Trump signed the new Covid relief bill during the holiday break, it’s not surprising to see that everyone is focused on the provisions for the Paycheck Protection Program, unemployment benefits and stimulus checks. However, it’s important to take notice of a hidden gem in the 5,500-page legislation that will undoubtedly help every small business owner in America, no matter what their situation may be.
That little gem is the dining write-off, otherwise known as the business-meals deduction.
Yes, Congress had countless problems to solve due to the pandemic, but one that was obvious to everyone was the severely impacted, if not decimated, restaurant industry. So politicians, in their infinite wisdom, decided that the best way to get more business for restaurants was to dish out a bigger incentive for business owners to dine in or order out. Or in other words, a tax deduction — and a whopper at that.
Thus, the Federal Government has directed the IRS to allow for a 100% dining write-off for business owners when ordering food from restaurants for tax years 2021 and 2022.
On the face of it, the provision sounds pretty straightforward, but there’s actually a lot to chew on....
What does restaurant rining really mean?
If we simply take the verbiage at face value, this would mean that dining in at a restaurant, or even ordering takeout, would qualify for the 100% write-off. Further, it wouldn’t be hard to presume it would also include food trucks, street vendors, bakeries or even catering businesses where food prepared to order.
I’m completely thrilled with this new juicy nugget in the legislation, and I don’t want to look a gift horse in mouth, but it actually leaves us with more questions than answers:
- What about food you might purchase at the grocery store for the employee lunch you are having?
- What if you order the food from the deli counter in the grocery store?
- Would this include the drinks in the fridge at the office, the bagels, donuts or coffee maker?
All of these questions still need to be answered in the near future with IRS regulations or interpretations.
What qualifies as a “business meal”?
Next, once we figure out what types of establishments qualify as a "restaurant," we need to clarify what constitutes a "business dining experience." Personally, I’ve always liked to break this question down into four main options/scenarios. These distinctions help most business owners better track dining expenses for bookkeeping and thus increase them as a write-off and for more tax savings at year-end.
- Business meeting while dining. This is the typical dining/business meal write-off most business owners are accustomed to. This is having food while talking with an employee, vendor, customer, client, business partner or at a workshop, club meeting, etc. If you are talking business and eating food, you should be thinking: “Write-off." Keep good records in your digital or paper calendar regarding who you met with in order to audit-proof the expense.
- Traveling by yourself for business. Many don’t realize that your dining doesn’t always have to be with another person "talking business" to be a write-off. The IRS code allows you to deduct meals while traveling for business, even if you are by yourself. Defining business travel can be tricky, but the general rule is traveling outside of a "normal commute" in your typical business day or activity. There isn’t a minimum number of miles you need to traverse in order to classify it as business travel.
- Group staff meetings with food (i.e. in-house with takeout; not at a restaurant). This has historically been a great write-off and gave rise to many large companies setting up cafeterias in their buildings to keep employees on-site and also provide a perk for employment. Before the Tax Cuts and Jobs Act, this was always a 100% write-off. However, for the past two years, it was cut in half, and the entertainment expense was completely eliminated as well. But under the new legislation, if you order food in from a restaurant for that staff meeting, we are back to a complete write-off.
- Food in the office (not takeout). This would generally be the items you would find in a typical company kitchen for employees. For example, bagels on Wednesday, donuts on Friday, coffee machine, treats in the fridge, etc. The tricky part here is that these items aren’t generally purchased from a restaurant, and thus under the new bill they may not receive consideration as a 100% deduction. But let’s presume you order donuts or bagels from a bakery that also makes sandwiches. Wouldn’t that qualify under the new law? It's unclear.
How should the “delivery” expense be treated?
Another interesting issue that’s been evolving over the years is whether or not delivery fees are part of the dining expense in the first place. With the onset of DoorDash, Grubhub and Uber Eats et al, a new line item for a business expense may have arisen: delivery fees.
Even if it wasn’t addressed in the new bill, many have asked if the delivery fee is really part of the food cost itself, not to mention the tip for the delivery that one could also argue had nothing to do with the prepared food (interesting, right?).
Before this new 100% deduction provision, which we are now currently blessed with for the next two years, how one might have treated the cost of delivery was of greater concern. If the food deduction was limited by 50%, we could have considered writing off the delivery fee at 100%.
Now I realize that one might claim I’m trifling with pennies, or being a little ‘ticky tacky’, but how many of you never envisioned paying what you did in delivery fees for food in 2020 while you were isolated in your home office for weeks on end.
Example: I drive my car to a local restaurant with my business partner or employee to hold an important business discussion over lunch. Is that a valid business mileage deduction? Sure! Is it limited by 50% because I’m driving to have a business lunch meeting? Nope. So if I choose to pay a delivery fee of $3.00 to have the lunch brought to my office in order to have the same business meeting in the conference room and utilize the whiteboard, shouldn’t I be allowed to write off 100% of the delivery fee in lieu of a valid auto deduction? I would argue yes, but I’m not the IRS. Just sayin’.
Well, if the IRS code wasn’t already esoteric enough, in time we hope we get some clarification on what constitutes a "restaurant," and whether a delivery person, or drone (and the cost thereof) is really part of the dining expense — go figure.
In the meantime, every U.S. business owner should enjoy the new and improved dining expense and at the same time help to revitalize the restaurant industry. Bon appétit!
Mark J. Kohler is a CPA, attorney, co-host of the podcast MainStreet Business and author of The Tax and Legal Playbook: Game-Changing Solutions For Your Small Business Questions, 2nd Edition and The Business Owner’s Guide to Financial Freedom: What Wall Street isn’t Telling You. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.