100% deduction for business meals in 2021 and 2022
Since the early 1990s, meals purchased while conducting business with a client, customer or vendor, or traveling out of town have been only 50% deductible for purposes of computing taxable business or self-employment income. The philosophy of the Presidential administration at the time was that people have to eat regardless of what they are doing and not wanting the government to be seen as heavily subsidizing the three-martini business lunch while still recognizing the jobs and economic activity provided by the restaurant industry. On April 8, 2021, the Internal Revenue Service issued Notice 2021-25, which made business meals 100% deductible, retroactive to January 1, 2021 and effective until December 31, 2022. Beginning January 1, 2023, the deduction reverts back to 50% unless additional guidance is issued stating otherwise. This guidance states that business meals must not be “lavish or extravagant” and you must be eating the meal while conducting business with a client, colleague or vendor, or traveling out of town for work. Also note that this deduction is generally only permitted with meals purchased at sit-down or take-out restaurants; any meals purchased at establishments that sell pre-packaged food or beverages not for immediate consumption, such as a grocery store, specialty food store, liquor store, drug store or convenience store as well as newsstands, vending machines or kiosks, do not qualify for this deduction.
If you take a client to a sporting event to entertain them while discussing business, and the stadium has some kind of sit-down restaurant or bar that serves food, or a food counter with no seating area where you can purchase a full meal, deductions for these purchases would probably be allowed; however, purchasing beer, hot dogs or popcorn from someone walking through the stadium or a smaller kiosk would probably be nondeductible. Undoubtedly, there will be a lot of disagreements during the subsequent audits over what was truly a “restaurant”. What is truly “lavish or extravagant” will be an even more obvious bone of contention; I would simply stay away from the five star restaurants and not make any premium liquor purchases during the meals. Most states will likely follow this temporary federal change on their returns as well, despite the potential loss of revenue (some states such as New Jersey have always treated them as 100% deductible).
Business meals have not been fully deductible on the federal returns since the early 1980s and this recent regulatory change is without a doubt an effort to stimulate the restaurant industry that has suffered badly during the Covid pandemic. Whether it is successful or not, only time will tell, but in the meantime, enjoy this higher deduction for your corporation, partnership or self-employment income and be sure to save your receipts!
IRS and Most States Extended Filing Deadline to May 17
Because of the ongoing situation with the pandemic and confusion over recent changes in the tax rules, the IRS has extended the standard filing deadline to May 17 instead of the usual April 15. This means that if you owe any taxes at filing, they must be paid in full no later than May 17. If extensions are filed, the deadline for filing is October 15 as usual, but this does not extend the time to pay the tax, it only prevents the IRS or states from assessing late filing penalties; late payment penalties and interest can still be assessed on any late paid taxes.
Happy Holidays and Best Wishes for 2021!
It’s late in coming but I wanted to wish all my clients and friends the happiest holiday season and best wishes for 2021! Filing season is just around the corner, and the difficult year of 2020 will be over even sooner. Soon I’ll be sending out my annual letter and gearing up for the filing season. A few things to remember before you toast your champagne to the end of 2020 -
If you have any last-minute charitable donations to make so you can have them as deductions for 2020, now is the time to make them. Also, just for 2020, if you are someone who normally takes the standard deduction and does not itemize their deductions - usually people who don’t have a mortgage or pay mortgage interest and property taxes that amount to less than the standard deduction - you can deduct up to $ 300 in charitable donations in addition to the standard deduction. If you are single without a mortgage and likely will be taking the standard deduction of $ 12,400 in 2020, you will be able to deduct up to $ 300 in charitable donations on top of that.
If you did not turn 70 1/2 before January 1, 2020, and you have 401k or IRA accounts that you would normally be required to start taking distributions from for your retirement, you are now not required to do so until age 72. If you need the money and are age 59 1/2 and older, by all means take the distribution, as you are permitted to do so without penalty starting six months after your 59th birthday. But if you would rather the money continue to grow as well as continue to defer taxes on income or growth in your traditional IRA or 401k, you may continue to do so until age 72. With Roth IRA’s or Roth 401k’s, there is no set date with you are required to take distributions.
Have a safe and pleasant New Year’s! I would imagine there won’t be too many big parties this year, but nothing to stop you from enjoying the champagne.
Long Overdue Updates to Tax Filing and Payment Deadlines
This post is long overdue and I apologize for not putting out anything sooner here, but the busy season has been tough, as many clients are pushing harder to get their refunds as soon as possible in these troubled times. As our country continues to cope with the Coronavirus crisis, both the IRS and states have made more changes to filing and payment deadlines for your 2019 returns as well as 2020 estimated payments. Estimated payments generally only concern self-employed taxpayers and taxpayers with significant investment income in addition to their regular salaries.
As I mentioned in my last post, any additional federal taxes owed for 2019 are due on July 15 and nearly all states have elected to follow or automatically follow federal policy in this regard. Additionally, your 2019 returns are also not required to be filed until July 15. Previously, the Internal Revenue Service and most states still required returns to be filed by April 15 despite the deadline for final payments being extended to July 15. To make everything simpler, both the final payment for the remaining amount owed for 2019 as well as the return filing are now both due on July 15. No late payment interest or penalties will be applied to federal taxes paid for 2019 so long as they are paid before July 15, 2020. However, please note that if you did not have at least 90% of your federal or state tax liability paid up before then, underpayment penalties will still apply. Additionally, while the Internal Revenue Service and most states are waiving late payment penalties and interest for payments made after April 15 but before July 15, some states are still imposing late payment interest on any 2019 payments made after April 15. Check with your state's department of revenue if you owe additional state tax for 2019 to see if interest will be charged on any payments made after April 15 but before July 15.
If you are self-employed or have a significant amount of investment income in addition to your regular salary, you normally would need to make your first quarterly estimated payment for 2020 by April 15 and your second quarterly estimated payment by June 15. However the Internal Revenue Service and most states have changed both the first and second quarterly payment due dates to July 15. While this somewhat simplifies things for taxpayers required to make estimated payments, this means 50% of your estimated tax must be made by July 15. Additionally, while nearly all states have followed the federal first quarterly payment deadline of July 15, for some states, the second quarterly payment deadline remains at June 15. In these states, this means that the state tax payment due on July 15 is based off your January, February and March income, while the state tax payment due on June 15 is based off your April, May and June income. States still following the June 15 rule for the second quarter may still move the deadline to July 15 as well. Verify this information on your state's department of revenue website.
Many clients have been asking about the federal stimulus payment and this will follow in a subsequent post. Meanwhile, continue to check the IRS website for more information and the status of your stimulus payment at: https://www.irs.gov/coronavirus/economic-impact-payments