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Our “How to Take 100% Business Meals Deductions for Real Estate Agents 2021 – 2022” post explains new tax deductions for business meals.

The COVID-19 pandemic probably reduced your income tax deductions for business meals. Now that restaurants are opening again it’s time to entertain potential clients. 

How to Take 100% Business Meals Deductions for Real Estate Agents 2021 – 2022

The Consolidated Appropriations Act (CAA) became law on December 27, 2020.

It created temporary, but important tax incentives to entertain clients and conduct business at restaurants. Gone are the elimination of most business-related restaurant expenses under the Tax Cuts and Jobs Act (TCJA) of 2017.

What The Consolidated Appropriations Act (CAA) Does

As explained by a CPA, the CAA allows 100% deductions for business-related food and beverage expenses. Before the CAA, these expenses were deducted at 50% of the cost.

Some cried about giving tax breaks to fat cats for their three-martini lunches. Yet, the CAA intended to help restaurants to recover from the COVID-19 business closures and economic fallout.

Others call the CAA the “restaurant’s bailout law”. It’s true because struggling restaurants need all the help they can get. Yet, this is only a temporary bailout for the restaurant industry during 2021 and 2022.

On April 8, 2021, the IRS issued new regulations for the CAA law (Notice 2021-25). Many questions about CAA got answered by the IRS. Here are some highlights:

  • Buying food and drinks and consuming them on-premises at restaurants are eligible;
  • Take out meals and beverages from restaurants are not eligible;
  • Purchasing food and drinks at establishments only offering prepackaged foods and drinks not consumed on the premises (like a grocery store) do not qualify; and
  • Meals and drinks purchased at the employer’s cafeteria for employees do not qualify.

What are Food and Beverages Costs?

The CAA defines food and beverage costs as:

  • Any food classified as a meal, snack, or any other type of food;
  • Beverages include bottled water, coffee, tea, refreshments, sodas, soft drinks, juices, and alcoholic drinks; and
  • Cost means the full expense for food and beverages including tips and sales tax.

Entertainment differs from business meals. The Tax Cuts and Jobs Act (TCJA) remains the law. That law eliminated “entertainment” as a business tax deduction. Taking clients to a sporting event, concert, bar, or playing golf are entertainment activities not qualified as business deductions.

But, food and beverages supplied during a disallowed event may qualify for the CAA deduction if:

  • Food and beverages bought separately during the entertainment venue;
  • Listed on a separate bill, receipt, or invoice; and
  • Reflecting the venue’s normal selling price (no discounts or promotions).

In other words, if the cost for the food and beverages are not separated from the total cost of the venue, they do not qualify for a deduction.

IRS Explains How to Take 100% Business Meals Deductions for Real Estate Agents 2021 – 2022

IRS new regulations explain what types of meals and beverages don’t qualify for deductions as:

  • The taxpayer (or an employee of the taxpayer) is not present during consumption of the food and beverages; or
  • The expense appears extravagant or lavish under the circumstances.

In other words, the taxpayer or a business employee must sit with the business associates and not overtly overspend on the meals and drinks.

The IRS further explains a “business associate” as a person who the taxpayer reasonably expects to deal or engage in active business conduct such as a prospective or established:

  • Client;
  • Customer;
  • Supplier;
  • Agent;
  • Professional advisor;
  • Partner; or
  • Employee.

Verify the Cost: Finally, the IRS expects taxpayers to continue following the long-standing rules for verifying business expenses to qualify for the deduction.

IRS Continues Non-Allowance of Meals Deductions for Non-Business Persons

The business meals deduction meant for “business associates” as listed above. This means people accompanying the taxpayer not considered “business associates” do not qualify. For instance, the taxpayer’s spouse, dependents, family members, and friends do not qualify as “business associates”.

Exception: However, a spouse, dependent, friend, or family member working for the taxpayer’s business and accompanying the taxpayer for business purposes does qualify for the deduction.

IRS Clarifies Employee Food and Beverages Deductions

The final IRS regulations in 2021 clarify that employers can compensate employees with food and beverages to get a 100% deduction.

For example, if the taxpayer treats an employee to food and drinks at a restaurant as a form of compensation like wages or fringe benefits, the 100% deduction applies. This applies despite how the employee treats the food and drinks on his or her tax returns. [See Regs. Sec. 1.274-12(c)(2)(i)]

History of the Consolidated Appropriations Act (CAA)

According to the Tax Advisor, the CAA tried to help restaurants suffering economic losses due to the COVID-19 pandemic in 2020 and 2021. Restaurant owners cried for federal government help to survive.

Their biggest hurdle was the Tax Cuts and Jobs Act (TCJA) of 2017. It eliminated business entertainment tax deductions and set a 50% limit for food and beverages deductions.

Yet, taxpayers became confused about whether the business meals and beverages deductions applied during business entertainment venues. As a result, the IRS issued guidelines in 2020 and finalized them in 2021 after the passage of the CAA.

The Consolidated Appropriations Act (CAA) allowed a 100% business expense deduction for the consumption of meals and beverages in a restaurant. This is only a two-year deduction for 2021 and 2022. By then, the restaurant industry should fully recover.

The KPMG accounting firm points out that the  “Taxpayer Certainty and Disaster Tax Relief Act of 2020” part of the CAA provided the 100% business meals and beverages deduction.

Conclusion

Now that you read our, “How to Take 100% Business Meals Deductions for Real Estate Agents 2021 – 2022”, let’s summarize it for you.

The real estate agent profession requires meeting potential, current, and past clients. Likewise, meeting and socializing with other professionals and real estate industry players.

The 100% business meals tax deductions should become a tool for motivating agents to use business meals to further business goals.

The former 50% business meal deductions helped to recruit leads and potential clients. But, leveling up to 100% induces more business meals.

What better way to get to know someone than “breaking bread together”. A meal with drinks can last hours and make it easier to bond.

As mentioned above, here is a list of qualified business meals deductions:

  • Purchasing meals with beverages and consuming them on-premises at restaurants;
  • Any meal, snack, desserts, or other foods qualify;
  • Beverages include any drink you paid for; and
  • Cost includes the food, drinks, sales tax, and tips.

Presence Required: You must (or use an employee) go with your business guests during the meals.

Important Facts to Know:

  • If you entertain business associates the entertainment is not tax-deductible. But, meals and beverages bought separately are deductible if verified with a separate bill, receipt, or invoice;
  • Business associates mean anyone you attempt or do business with;
  • Spouse/Family Members Qualify – Your spouse and family members are business associates if you employ them or compensate them for business functions; and
  • This temporary business deduction only lasts during the 2021 and 2022 tax years.

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Steven Rich, MBA – Guest Blogger

DISCLAIMER: We used tax information written by the IRS, CPAs, and tax experts, in this post. But, this post is not intended to provide legal or tax advice. With ever-changing laws, regulations, and court rulings regarding these matters, we advise you to consult with a tax lawyer or a CPA before using these tax deductions.

 

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