Many businesses see entertaining clients, customers, or employees as part of maintaining good relationships and conducting business effectively. Whether it’s a client lunch, team celebration, or networking event, these expenses can add up—but not all of them are deductible. Recent tax law changes have placed stricter limits on entertainment deductions while still allowing some meal expenses to qualify. Here’s what business owners need to know.
Entertainment Expenses: No Longer Deductible
Since January 1, 2018, the deduction for most entertainment expenses has been eliminated. This means that costs associated with events like sporting games, concerts, or club memberships are not deductible, even if they are directly related to business discussions. However, some exceptions remain for meals provided during these activities, as long as they are properly invoiced and separated from entertainment costs.
Certain activities may still qualify for deductions under specific circumstances, including:
Employee recreational activities such as team-building events, office parties, or employee appreciation gatherings, as long as they primarily benefit employees and are not highly exclusive.
Advertising and promotional events that are open to the public and serve as a marketing tool.
Entertainment expenses included as taxable wages to an employee, which may then be deductible by the employer.
Business Meals: What’s Still Deductible?
While entertainment expenses are no longer deductible, business meal expenses may still qualify—typically at a 50% deduction rate. To be eligible, the meal must be an ordinary and necessary business expense that is not lavish or extravagant. Additionally, either the taxpayer or an employee must be present when the meal is provided, and the food or beverages must be provided to a business associate such as a client, customer, supplier, or employee. If meals are part of an entertainment event, they must be separately invoiced at fair market value.
Some business meals qualify for a 100% deduction, including:
Company-provided meals for employees working overtime.
Meals provided to employees during training sessions or company-wide meetings.
Meals for employees traveling overnight for business purposes.
Meals provided as part of a charitable event or community service initiative.
Upcoming Changes to Employer-Provided Meals
Starting in 2026, further restrictions will take effect for employer-provided meals. After December 31, 2025, businesses will no longer be able to deduct expenses for meals provided on the employer’s business premises for the employer’s convenience. Additionally, meals offered at on-site eating facilities that were previously considered a de minimis fringe benefit will no longer be deductible.
Best Practices for Business Meal Deductions
To maximize deductions while staying compliant, businesses should:
Maintain detailed records of meal expenses, including receipts, invoices, and documentation of the business purpose.
Ensure food and beverage costs are separately invoiced when part of an entertainment event.
Educate employees on what qualifies as a deductible expense and how to properly track it.
Use business credit cards for clear expense tracking and proper substantiation.
Consult with a tax professional to ensure proper classification and compliance with IRS regulations.
Final Thoughts
Understanding the rules surrounding meal and entertainment deductions can help businesses make informed financial decisions. While entertainment expenses are largely no longer deductible, properly documented business meals can still offer tax benefits. Staying up to date with current regulations and maintaining accurate records will ensure compliance and maximize any available deductions.
