The IRS Provides Guidance on Meal and Entertainment Deductions

Tax rules for deducting business-related meals and entertainment have shifted in recent years and understanding what is and isn’t deductible today is essential to avoid surprises. This guide outlines the current rules as of 2025, including limits, exceptions, documentation requirements, and upcoming changes.

How the Current Rules Work: Meals vs. Entertainment

As a rule, meal expenses incurred while conducting business remain 50% deductible. This includes meals with clients, meals while traveling for business, snacks or meals for employees, and other ordinary and necessary meal costs.

The 50% limitation applies to the total meal cost, including taxes and tips. To qualify, the meal should be directly related to or associated with the active conduct of your trade or business.

Under the changes brought by the Tax Cuts and Jobs Act (TCJA) entertainment, amusement, recreation, or club-related expenses are generally not deductible for business. This includes things like concerts or sporting event tickets, club memberships, golf outings, etc.

Only in rare cases such as when the cost of food or beverages is invoiced separately from the entertainment and meets other strict requirements, could a portion become deductible.

The proposed regs provide that the deduction limitation rules generally apply to all food and beverages, whether characterized as meals, snacks or other types of food or beverage items. The deduction limitations apply even to food and beverages treated as de minimis fringe benefits.

The proposed regs define food or beverage expenses as the cost of food or beverages, including any delivery fees, tips and sales tax. But the deductible expenses for employer-provided meals at an eating facility don’t include operating expenses for the facility (for example, the salaries of employees preparing and serving meals and other overhead costs).

Important Exceptions & Full Deduction Scenarios

While 50% is the standard, certain meal-related expenses may still be 100% deductible, including:

• Meals treated as employee compensation
• Meals provided to employees for employer convenience (e.g., work-related meals, occasional overtime, on-site meals), subject to certain conditions though these deductions are under pressure in future law changes.
• Company-wide social events (such as holiday parties, staff retreats, or public-facing business gatherings) that benefit employees or serve business purposes.

Recent Rule Changes

Under prior law, both meals and entertainment were often deductible (typically at 50%).

The 2018 Tax Cuts and Jobs Act eliminated the business deduction for most entertainment expenses while keeping the 50% deduction for business meals. In response to the COVID-19 pandemic and to support restaurants, Congress temporarily allowed a 100% deduction for business meals from restaurants in 2021 and 2022.  That temporary 100% deduction expired at the end of 2022. Since 2023, the standard 50% meal deduction again applies.

What's Ahead

Under the upcoming changes in the One Big Beautiful Bill Act (OBBBA), beginning January 1, 2026, some deductions for employer-provided meals especially subsidized meals or on-site cafeterias may be eliminated entirely unless exceptions apply. Other meal deductions such as business meals with clients, travel meals, and properly documented business meals aren't directly affected by this elimination. However, businesses should proactively review their expense policies to avoid surprises.

Best Practices

• ‍Document Thoroughly: Keep detailed records of receipts, who attended the meal, date, business purpose, and the context for the expense (e.g., client meeting, business travel, employee event). Separate meal costs from entertainment: If you combine entertainment and food, be sure they’re invoiced or billed separately; otherwise, the meal could be disallowed. ‍
• Avoid Lavish or Extravagant Meals: The IRS expects meals to be ordinary and necessary. Extravagant meals are more likely to be challenged. ‍
• Review Employee-Meal Policies Now: Given the 2026 changes, consider revising or eliminating subsidized cafeteria plans or on-site meals, or prepare for potential disallowance. Stay current with law changes. Tax law evolves what was deductible under temporary pandemic-era rules may no longer apply. If you have questions on business-related meal and beverage expenses, please don’t hesitate to contact us.