One of the goals of the government stimulus programs has been to get restaurants back on their feet. And the good news is, one of the new stimulus incentives designed to aid restaurants can bring significant tax benefits to our owner-operator (O/O) clients. This specific tax incentive increases the Business-Meal Deduction from 50% to 100%, with the idea being that people will spend more money eating out thereby supporting the restaurant industry. This incentive is only temporary and is in place for tax years 2021 and 2022.
While the intent of this new rule is positive, it created significant confusion regarding how to apply it to O/Os. The reason for the confusion is that there are special Per Diem deduction rules that apply specifically to O/Os, but this new temporary 100% deduction rule is not in that section of code that addresses O/O Per Diem. Instead, it is spelled out in an entirely different section of the IRS code. As a result, ATBS has had multiple conversations with the Internal Revenue Service (IRS) to determine the best way for our O/O clients to benefit from this new tax incentive.
Following is ATBS’ take on this new rule, and our recommendation for taking advantage of the higher Business-Meal Deduction:
If an O/O purchases all of their meals from a restaurant, they would be able to take a 100% Per Diem deduction as opposed to the traditional 80% Per Diem deduction. For example, if you were away from home 300 days in 2021 and purchased all of your meals from restaurants, you could take a meal deduction of $19,800 (300 X $66/day X 100% = $19,800). The old per diem calculation is only $15,840 (300 X $66/day X 80% = $15,840). So the additional deduction from the new rule is nearly $4,000, potentially resulting in a significant tax savings.
The challenge comes in knowing that most truck drivers utilize a combination of purchasing some pre-packaged meals from places other than restaurants (i.e. grocery and convenience stores), and then also purchasing meals (both take-out and dine-in) from restaurants. The IRS knows it’s not plausible to track every receipt, and then figure out how to apply an 80% or 100% deductible amount to the set $66/day Per Diem deduction. Thus, without final Treasury regulations in place, ATBS offered a common sense suggestion for tracking Per Diem expense for 2021 and 2022, and the IRS agreed with our suggestion.
Here’s how it works: You should estimate a percentage of the number of meals purchased from restaurants (both take-out and dine-in) versus the number of meals purchased from other establishments (i.e. grocery and convenience stores). As an example, if you are away from home driving for 3 weeks and eat 3 meals a day, you would eat 63 total meals. If you purchased 28 of those meals at a restaurant, then 44% of your meals would be considered purchased at restaurants (28 ÷ 63 = 44%). The end result would be to take a 100% Per Diem deduction on 44% of your meals and an 80% Per Diem deduction on 56% of your meals.
ATBS will ask you on your year-end tax questionnaire what percentage of your meals on the road were purchased from restaurants. If you don’t know the answer, we will use the traditional 80% Per Diem deduction. However, if you do know the percentage, we will be able to take the higher 100% Per Diem deduction for those meals purchased from restaurants.
As always, the IRS requires substantiation for tax deductions, so you should retain those physical receipts when you purchase meals at a restaurant. And as always, in order to take the Per Diem deduction, you must still use some sort of written record (e-Log, calendar, etc.) to verify all days spent away from home.
For all of our clients using the ATBS Mobile App, we are introducing a brand new feature for tracking your Per Diem days away from home. The new Per Diem tracker will be available in our next release, which is scheduled for June 2021.
Per Diem is one of an owner-operator’s largest tax-deductible expenses, and the difference between a tax preparer doing it right versus doing it wrong can mean several thousand dollars to you. We hope this outline provides the necessary guidance you need to take full advantage of the new (albeit temporary) 100% Business-Meal deduction. And as always, if you have any questions, please don’t hesitate to reach out to your ATBS Business Consultant.