Deducting Business Meal and Entertainment Expenses Today

Do you know the current rules for claiming tax deductions for business meals and entertainment? Whether you're wining and dining a prospective customer or taking an employee to lunch, you might be confused about what's deductible — and you're not alone. The federal income tax treatment of meals and entertainment expenses has been a moving target in recent years, and the rules have changed somewhat under the One Big Beautiful Bill Act (OBBBA).

Here's what business owners need to know when filing their 2025 returns or planning for the 2026 tax year.

Entertainment Costs

For 2018 and beyond, the Tax Cuts and Jobs Act (TCJA) permanently eliminated deductions for most business-related entertainment expenses. Examples include the costs of taking customers golfing or treating them to a night at the theater.

However, there are some exceptions. Entertainment expenses for employee parties may still be deductible if specific requirements are met. For instance, the entire staff must be invited — not just management.

You can also deduct 100% of entertainment costs that are:

• Reported as taxable compensation to employee recipients on W-2 forms or taxable income to nonemployee recipients on 1099 forms,
• Sold to employees or customers for full value, including the cost of related facilities, or
• Made available to the general public.

For example, a retailer can hire a pianist to entertain shoppers and fully deduct the cost. The OBBBA didn't change these rules.

Meal Expenses

Under the tax code, the term "food and beverage costs" refers to all food and beverage items, regardless of whether they're characterized as meals, snacks or after-dinner cocktails. It means the full cost of such items — including any sales tax, delivery fees and tips.

Under the TCJA, food and beverage costs incurred after 2017 are only 50% deductible in most situations. This includes the cost of meals directly related to business meetings and work travel. However, you must properly substantiate deductible food and beverage expenses. And no deductions are allowed for meal expenses incurred for spouses, dependents or other individuals who accompany the taxpayer on business travel or accompany an officer or employee of the taxpayer on business travel — unless the expenses would otherwise be deductible by the spouse, dependent or other individual. For instance, meal expenses for your spouse are deductible if he or she works in your business and accompanies you on a business trip for legitimate business reasons.

The same exceptions listed above for entertainment costs also apply to the 50% deduction rule for business meals. That is, you can generally deduct 100% of the costs of food and beverages served at company parties that all employees can attend. Likewise, business-related food and beverage expenses may be fully deductible if they're:

• Reported as taxable compensation to employee recipients on W-2 forms or taxable income to nonemployee recipients on 1099 forms,
• Sold to employees or customers for full value, including the cost of related facilities, or
• Made available to the general public.

For example, a retailer can deduct the costs of complimentary coffee or snacks for its customers.

What about business meals provided in connection with nondeductible entertainment, such as hot dogs and soda at a football game? They're still 50% deductible, as long as they're purchased separately from the entertainment or their cost is separately stated on invoices or receipts. That means you'll need to obtain detailed receipts from entertainment venues if you want to deduct these costs.

Effective through December 31, 2025, you're generally allowed to deduct 50% of the cost of meals provided via an on-premises cafeteria or otherwise on the employer's premises for the convenience of the employer. However, there are some limited exceptions. For example, in addition to the exceptions listed above, meals for crew members of certain commercial vessels or drilling rigs may qualify for a 100% deduction.

Key OBBBA Changes

Under the OBBBA, effective January 1, 2026, some employer-provided meals are no longer deductible unless an exception applies. This limitation applies only to the cost of food and beverages:

• Provided for the employer's convenience on business premises, including company cafeterias, and
• Considered de minimis fringe benefits.

For the 2025 tax year, those costs are 50% deductible; but they'll generally be nondeductible going forward. (This disallowance was scheduled under the TCJA and upheld under the OBBBA.) Employers that routinely provide on-site meals or snacks for the company's convenience will likely be affected by this change. Contact your tax advisor to learn more.

Additionally, the OBBBA expanded the limited exceptions to nondeductible on-site business meals. Specifically, for tax years beginning after 2025, expenses for food and beverages provided to crew members of certain U.S. fishing vessels and fish processing facilities may qualify for a 100% deduction. Contact your tax advisor for details.

What's Deductible, What's Not?

Most of the rules for deducting meals and entertainment costs for 2025 remain the same under the OBBBA as they were under the TCJA. However, given the OBBBA's broad scope, many business owners may be unaware that the fine print expands the limitations on deductible meals and entertainment costs starting in 2026. Contact your tax advisor to assess how the changes will impact your company and identify which costs may still qualify for partial or full deductibility under current tax law.