Under the Taxpayer Certainty and Disaster Relief Tax Act of 2020, business owners can now deduct 100% of qualifying, business-related meals for tax years 2021 and 2022, but only if those meals are purchased at a restaurant. This special deduction is designed to support recovery of establishments defined as restaurants that were negatively impacted during COVID-19 shutdowns.
Reduce your pharmacy tax impact with the information provided in this video from Kendell Harris, CPA at Sykes & Company, P.A. pharmacy advisors. Kendell summarizes the law applying to tax years 2021 and 2022 and then gives examples of which business-related meals may qualify for either a 50% deduction or the full 100% deduction.
As always, no deduction is allowed for business meals unless:
- The amount charged is not extravagant or inflated
- The food is purchased with a separate receipt from any associated entertainment (entertainment expenses are non-deductible)
- The taxpayer or an employee of the taxpayer is present at the furnishing of the food and beverages, and
- The food and beverages are provided to the taxpayer or a business associate.
Talk to us at Sykes & Company, P.A. about this and other beneficial tax deductions for your independent pharmacy.
If you prefer to read this content, the video transcript is below.
As a part of the Taxpayer Certainty and Disaster Relief Tax Act of 2020, there’s been some law change related to meals and entertainment. Well for meals, they can be 100% deductible in certain scenarios. Just to give you a little bit of information about the meals and entertainment, before 2018 meals were 50% deductible and entertainment was 50% deductible. However, after 2018 entertainment was excluded. So there was no deduction for the golf outings, or maybe watching some sporting event, things of that nature.
So now, and for this temporary change for the year 2021 and 2022, entertainment is still excluded. However, meals can be 100% deductible if they are purchased from a restaurant. There’s an IRS notice that gives specific definition to a restaurant and gives some examples as to what is not a restaurant. Just so I don’t get it wrong, I have the notice in front of me. And what it says is that a restaurant is a business that prepares and sells food and beverages to retail customers for immediate consumption. So what’s interesting, it also adds, it says that that’s regardless of if the food or beverage is consumed on the business’s premises. So, if you were to have a restaurant fast food or a dine-in restaurant, both of those could be eligible for a 100% deduction. If you took the food away or ordered in, or had something like a Door Dash or a waiter, and the food was delivered, but it was purchased from a restaurant, even though you’re not consuming it in the restaurant, you still could be eligible for a 100% deduction. And this again is a temporary change to the tax law, and it’s applicable to the years 2021 and 2022.
And what is not a restaurant, it talks about businesses that sell pre-packaged goods that are not for immediate consumption, such as grocery stores, food or beer and wine store, liquor store, drug store, convenience store, or even a vending machine kiosk. So what’s interesting about this new update to the law is it’s not necessarily the meal itself that dictates whether it’s a 50% deduction or a 100% deduction, but it’s more of where the meal was purchased. So if it’s at a restaurant, it would qualify for a 100% deduction, but if it was at like a grocery store or a convenience store, then that would apply to the same standard rules for the 50% deduction.
Well this change, changing from a 50% deduction to 100% deduction could be big for pharmacy owners depending on how much travel they do, the meals that they provide for their employees, and also maybe prospective business partners. So, how could a pharmacy with some real life practical examples, these are going to be some generic examples, so work with your CPA for the specifics, especially if you have a material purchase that you plan on making, but let’s say you had a restaurant and you go with a prospective client and you have a meal. Well, having a meal at this restaurant will be now 100% deductible as a business meal. Now let’s say you were networking and you took some individuals to a football game or a soccer game or something of that nature. The cost of the game would be 0% deductible because of the laws of the Tax Cuts and Jobs Act, that stays the same as the 0% deductible. However, if at that game you purchased a meal that was separately itemized, and the price was the regular price that anyone would pay for that same meal. So you have a receipt for the meal separate from the activity, you could deduct the meal for that activity. The deduction for that meal would be 100%, but if the activity included the meal, and that was not itemized separately, you have a 0% deductible… deduction, excuse me.
The next is maybe you had employee meals that are required for a business meeting, and you purchase it from a restaurant. Now with the new laws that will be 100% deductible. Or maybe you and some employees travel overnight, and you have a meal at a fancy restaurant, and as long as it’s not overly lavish, that also would be 100% deductible. If while traveling you get some food and you prepare it at your hotel room, you cook it yourself, that would be 50% deductible because you did not purchase it from a restaurant. And also if you had a year-end party, maybe an outing or a party just for your employees and the main focus was not on the highly compensated individuals, but all of the employees were invited, maybe a team building activity, the meals and the activity itself would be 100% deductible. And that law has been in place before 2021, so that’s a permanent law that things such as activities, team building experiences are 100% deductible.
So those are some examples that maybe some pharmacy owners could run into and now take advantage of getting a 100% deduction instead of a 50% deduction as was in the past.