Law Firms: Take Advantage of the Enhanced Business Meal Deduction Before It’s Gone

By: Kaytee, Rossano

At a glance

• The main takeaway: The long-established 50% deduction on business meals has been temporarily enhanced. Law firms, and other businesses, can now deduct 100% if the meals and beverages fall into the applicable criteria.
• Impact on your business: Taking clients and prospective talent out for meals is seen as a vital tool and perk for many businesses. If your law firm hasn’t taken advantage of this tax benefit yet, now is the time as the temporary enhancement is set to expire on December 31, 2022. 
• Next steps: Aprio’s Professional Services Advisory team can guide you through the regulations to ensure you get the most out of this tax benefit before it expires.

Schedule a consultation with an Aprio Professional Service Advisory team member today.

The full story:

Business meals are an essential component for any law firm to successfully court both clients and talent. Over recent years, the deductibility of these meals, for tax purposes, has fluctuated and it can be a bit confusing to understand what qualifies as deductible versus nondeductible.

The long-standing rules of the 50% deduction on meal expenses have been temporarily enhanced. According to the Internal Revenue Service (IRS), businesses can generally deduct the full cost of business-related food and beverages from restaurants for the 2021 and 2022 tax years. However, many taxpayers have yet to fully utilize this tax-saving benefit due to the chaos of the pandemic and the rapid changes in tax laws.

Understanding the amendments in meal expense deductions can have a positive impact on any law firm’s bottom line.

What qualifies for the enhanced business meal deduction?

Taxpayers can deduct 100% of business meals, assuming they fall within the appropriate criteria:

• The business owner or employee must be present when food and/or beverages are provided.
• The meal must not be lavish or extravagant.
• Restaurants are defined as businesses that prepare and sell food and beverages for immediate consumption, on or off premises.

Since the enhancement is set to expire on December 31, 2022, the purchase of food and beverages must have occurred after December 31, 2020, and before January 1, 2023.

It’s important to note, prepackaged meals and drinks do not qualify under the 100% meal deduction enhancement. Likewise, items purchased from grocery, convenience, liquor, or similar stores do not qualify for the deduction either as they would be considered prepackaged or not for immediate consumption.

How does entertainment fit into the temporary tax benefit?

Under the previous regulations, entertainment expenses were allowed at a 50% deduction, then in 2018 became nondeductible after the Tax Cuts and Jobs Act went into effect. However, meals and beverages purchased during business activities could be deemed deductible during entertainment activities if:

• The food and beverage purchases are separate from the entertainment purchases.
• Costs related to the food and beverages are on one or more separate bills, invoices, or receipts.

For example, while tickets to a golf outing or sporting game for the purpose of entertaining clients or prospective talent are nondeductible, food and beverages while in attendance at the outing or game could qualify under the current enhanced deduction.

The bottom line

The 100% business meal deduction is a temporary tax benefit and will not extend into the 2023 tax year. At that point the 50% limitation, under the previous regulations, will then be reinstated.

If you haven’t already, your law firm could benefit from this enhanced deduction while it still lasts. However, it’s crucial to keep good records and begin planning early to properly prepare for your upcoming tax return. Aprio’s Professional Service Advisory team can review your business expenses to ensure you’re able to take advantage of the 100% meal deduction while it’s still available.

Schedule a consultation with an Aprio Professional Service Advisory team member today.

Related resources

• Multistate Law Firms Could Have a State Tax Nexus Filing Obligation: 3 Big Questions Answered
• 3 Post-Pandemic Challenges Facing Law Firms
• About Aprio’s Professional Services