100% Tax Deductible Business Meals

Can a 100 Percent Tax Deduction for Business Meals Make a Difference for Restaurants? Let’s Find Out Together

Help is at hand, if only people will use it. That’s the message we’re hearing behind one brief, but potentially significant provision included in the recent omnibus spending and coronavirus relief bill, which passed in late December 2020. With Sec. 210 of The Consolidated Appropriations Act, 2021, H.R. 133 (page 1885 of the full bill, available HERE), the U.S. government made business meal expenses for the next two years 100 percent tax-deductible.

Unlike the direct aid that restaurants are eligible for through the Paycheck Protection Program (PPP), however, this business dining provision acknowledges that there’s something besides monetary assistance that the restaurant industry vitally needs right now: customers.

And while the U.S. government can’t – and seriously shouldn’t – be responsible for producing enough dining activity to compensate for all of the hits the restaurant industry has taken from the pandemic, it can help make spending money with restaurants as attractive as possible.

Because corporate budgets are still budgets, CFOs no doubt are already looking into the implications of this tax change. This bump in business dining’s status from 50 percent to 100 percent tax-deductible may have a January 1, 2023 expiration date, but there’s a lot of good it can do between now and then.

Let’s step back and look at why anyone should even expect business dining to make a difference. It helps to consider that an appreciable portion of restaurants’ freefall in revenues for 2020 can be attributed to the loss of business diners.

Our analysis of 75 million dining transactions by employees of large enterprises in the U.S. between January 2019 and September 2020 shows that as government-mandated shutdowns went into effect and companies largely transitioned their employees to work from home, business dining transactions fell by 84-85 percent in April and May 2020, compared with the same period in 2019. And while that percentage has fluctuated widely since then, it obviously has not rebounded to pre-pandemic levels.

Why does this matter? Because business dining transactions tend to be higher than non-business-dining transactions – up to 40 percent higher on average. This is true not only at high-end restaurants, but for restaurants all along the dining spectrum. So creating conditions that favor a return of business dining activities should also signal hope for restaurants at the same time.

What’s more, the extremely brief language in the bill simply refers to “food or beverages provided by a restaurant” – which seems to indicate that some dining behaviors that have grown in popularity during the pandemic, like ordering takeout and delivery, may be covered. Given that today’s business dining activities take many different forms – from the traditional wining and dining of VIPs that most people probably think of in this context, to the working lunches, client food drops, and dinners on the road – the general nature of the provision should apply to a full range of dining activities that hit our corporate partners’ T&E budgets.

Here’s what this provision really comes down to: it’s not about waiting out the coronavirus. Restaurants truly need diners to make purchases now. Making business dining expenses 100 percent tax deductible gives companies a financially sound incentive to support their employees in being the ones to make those purchases. And any business diner’s next expense report could represent a lifeline for the restaurants they know and love.

So can a 100 percent tax deduction for business meals really make a difference? Let’s find out together.

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