(Art credit: Pedro Gomes)
If your freelance business reimburses contractors for meals consumed while traveling, you can now deduct the per diem portion of meal expenses at 100% according to new guidance from the IRS which covers tax years 2021 and 2022.
If you are planning to take a client out for a holiday meal, remember that as part of the HEALS Act instated as part of the government’s COVID-19 relief program, you can deduct the expense as an eligible meal expense. This includes meals from 2021 and those you may have in 2022.
This guidance applies to the period from Jan. 1, 2021, through Dec. 31, 2022. As a reminder, your freelance business can claim 100% of its food or beverage expenses paid to restaurants if you, the business owner (or an employee or representative of the business), is present when food or beverages are provided, and the expense is considered reasonable. The 100% business meal deduction is designed to help restaurants affected by the pandemic.
Keep in mind that under this temporary tax deduction provision, restaurants are defined as “businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption” by the IRS. This means that if you are buying a business meal from a grocery store or convenience store, it is not eligible under these rules. In addition, this provision does not allow certain employer-operated eating facilities to be classified as restaurants
What has not changed is that you need to keep your receipts to fully deduct business-related restaurant meals. In addition, you still need to document when, where why and with whom you shared the meal. Specifically, your meals must meet the requirements laid out in the related IRS guidance when it comes to who you share the meal with. It must be: “a person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business such as the taxpayer’s customer, client, supplier, employee, agent, partner, or professional adviser, whether established or prospective.”
Be sure to keep your restaurant receipts so you have the documentation needed to reduce your tax bill as much as possible now. Once 2022 is over, unless the 100% deductibility guidance is extended, the rules put in place under the Tax Cuts and Jobs Act will come back into play. This guidance applies for expenses incurred after December 31, 2017, and, under the TCJA, if they are incurred and paid after Dec. 31, 2025, they will not be deductible at all.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a free newsletter, blog and a comprehensive freelance tax guide.