100% Meal Deduction for 2022 Raises Audit Risk

[erhamm]

We were filling out the Expense category under self employment for our 2022 return and there is a category Meals 50% limit and Meals 100% limit. When we enter Business Meals under Meals 50% the audit risk comes back as low. When we remove that and enter same amount under Meals 100% limit it becomes a medium risk for audit. I thought maybe it was the amount but even $500 under Meals 100% gives a medium risk for audit.

Is this a software glitch or is the IRS looking closer at Meals 100%?

[Mike9241]

you should read IRS pub 463 pages 10 through 12 about 50% meals and those that can be excluded. most meals are subject to the 50% limit. that's why your audit risk jumped when you put in an amount for 100%  you don't get to pick which % applies. there are rules for determining which % applies. 

https://www.irs.gov/pub/irs-pdf/p463.pdf (2021 version) 

[AliciaP1]

For 2021 and 2022 only, the only meals that are eligible for the 100% deduction are meals purchased from a restaurant and have an employee or the business owner present at the meal.  The audit risk tracker rates it a higher risk because of the specific requirements for the deduction. 

See Enhanced business meal deduction from the IRS for more information.

@erhamm

[erhamm]

Thanks - in the case of a self employed real estate agent (1099) who is paying for the entire check for a meal she is having with a client (discussing business) at a restaurant does that fall into a Business Meals 100% for 2022, 50% because she is paying for her clients food as well, or nothing as it is deemed entertainment?

[JosephS1]

Yes, you can deduct 100% of the cost of meals for business purposes if the meals were purchased at a restaurant.  This is for 2021 and 2022 returns ONLY.  For 2023 and beyond, as of now, the deduction reverts back to the 50% rule.  Below is a link to the IRS and TurboTax guidance:

Enhanced Business Meal Deduction via IRS

TurboTax guidance on business travel deductions

@erhamm

[MJLAW]

This is what I understand however as the OP stated, the issue is that TurboTax is flagging using the 100% approach as an audit risk, and providing feedback that doesn't consider this tax rule for 22'.  Other than the text recommending to use 100% it appears the TT software is not aware of this ruling.  For me this raises a concern on how TT will handle this, and if we take advantage of this legitimate tax break, is TurboTax going to do something incorrectly that substantially increases our audit risk?  Also, TT is saying using 100% is increasing audit risk. Is there any legitimacy to this, or is it all in error because it's not taking the Taxpayer Certainty and Disaster Relief Act of 2020 into consideration?

[AliciaP1]

While it is a valid tax rule for 2022, excessive amounts claimed as 100% deductible meals expense could raise a flag with the IRS.  TurboTax is just helping to notify you to be certain of your deduction so that if the IRS questions it, you have your support and can validate the full deduction.

See Need to Know for the full details from the IRS regarding the enhanced deduction.

@MJLAW 

[Orlando 1967]

I'm confused. If the IRS is letting us deduct 50% meals at the 100% rate for 2022, then why would that increase the audit alert from low to medium?? The audit risk should not increase because they are allowing it unless the program doesn't account for this temporary rule. Right?