Tax Planning for Business Meals and Entertainment Deductions

Many businesses view occasional “wining and dining” of customers and clients to be a necessary cost of doing business. The same goes for taking business associates, or even employees, out to lunch occasionally after an especially tough assignment has been successfully completed. 

While it is easy to think of these entertainment costs as deductible business expenses, due to a recent change in the tax law, many of those expenses may not be deductible.

Entertainment Expense Deduction Limited

Congress has eliminated the deduction for most entertainment expenses paid or incurred after December 31, 2017. Entertainment expenses include fees or dues associated with any social, athletic, sporting club or organization. However, your company may still be able to deduct the cost of meals as a business expense if you maintain adequate records to substantiate the deduction.

Business Meals

Generally, your company can deduct 50 percent of the cost of meals as a business expense if the following requirements are met:

• the expense must be “ordinary and necessary” and paid in carrying on a trade or business.
  • The IRS says that an "ordinary" expense is one that's "common and accepted in your trade or business," and a "necessary" expense is one that's "helpful and appropriate" for your work.
• the expense may not be lavish or extravagant.
• the taxpayer or an employee must be present when the food or beverages are served.
• food and beverages must be provided to the taxpayer or a business associate; and
  if the food and beverages are provided during or at an entertainment activity, separate invoicing is required.

The food or beverages must be provided to someone with whom the taxpayer reasonably anticipates engaging in trade or business activities, such as a customer, client, supplier, employee, agent, partner, or professional advisor, whether they are an existing or potential contact. This definition is applied to employer-provided food or beverage expenses by considering employees as a type of business associate as well as to the deduction for expenses for meals provided by a taxpayer to both employees and non-employee business associates at the same event.

Meals provided to employees after 2025. Certain employer-provided meal expenses paid or incurred after December 31, 2025, are prohibited. Beginning in 2026, no deduction is allowed for amounts that an employer pays or incurs for

• meals that are excludable from an employee’s income because they are provided on the employer’s business premises for the convenience of the employer; or
• food, beverage, and eating facility expenses for facilities located at an employer’s business that provide meals that are considered a de minimis fringe benefit.

Certain meals provided to employees may be 100% deductible.

Meals at certain team building social, recreational, or entertainment outings available to all company employees may be 100% deductible.

Examples are:

• A company-wide golf outing, including meals
• A company-wide holiday party or summer picnic

Invoicing is important. The deductibility and treatment of food and beverage expenses depend on how they are invoiced. Food and beverage expenses include delivery fees, tips, and sales tax. For food or beverages provided at or during an entertainment activity, the amount charged for food or beverages on a bill, invoice, or receipt must reflect the venue's usual selling cost for those items if they were to be purchased separately from the entertainment or must approximate the reasonable value of those items. However, if the invoices are not stated separately and no allocation can be made, the entire amount is nondeductible.

Please contact your Herbein tax consultant if you have questions regarding this article or business meal and entertainment expenses.

Article contributed by Brianna M. Casuso