We are writing to inform you of significant changes to the deductibility of business meal and entertainment expenses as a result of the recently enacted 2025 Act (commonly referred to as the OBBBA). These changes will impact how your business accounts for meal and entertainment expenses beginning in 2026.
Key Changes and Continuing Rules
Elimination of Most Business Meal Deductions after 2025:
For amounts paid or incurred after December 31, 2025, the deduction for most business meals is eliminated. This includes meals provided for the employer’s convenience, meals at employer-operated eating facilities, and de minimis fringe benefit meals on the employer’s premises. These expenses will no longer be deductible for tax years beginning in 2026 and beyond, except for limited exceptions such as certain fishing operations and bona fide sales transactions (e.g., restaurants selling meals to customers).
50% Deduction for Business Meals Remains (with Conditions):
The general rule allowing a 50% deduction for business meals remains unchanged, provided the expense is not lavish, the taxpayer (or employee) is present, and the meal is with a business associate or client. Meals provided during entertainment events are only deductible if purchased separately or if the cost is separately stated and not inflated.
Entertainment Expenses Remain Nondeductible:
The OBBBA did not reinstate the deduction for entertainment expenses. Costs for entertainment, amusement, or recreation (such as tickets to sporting events, theater, or golf outings) remain fully nondeductible. Only meals that are purchased separately from entertainment or are separately stated on an invoice and not inflated, may be considered for deduction.
Employer-Provided Holiday Parties, Picnics, and Employee Appreciation Events:
The OBBBA (2025 Act) continues to allow a full deduction for expenses related to employer-provided holiday parties, company picnics, and similar occasional employee appreciation events. To qualify, these events must be primarily for the benefit of employees who are not highly compensated (i.e., not officers, 10% or greater owners, or otherwise highly compensated employees), and the event must not be discriminatory in favor of such individuals. The 50% deduction limitation does not apply in these cases, and all related expenses are fully deductible if properly substantiated.
No Change to Substantiation Requirements:
The substantiation requirements for business meals remain unchanged. Documentation must include the amount, time, place, business purpose, and business relationship.
Effective Date and Transition:
The new rules take effect January 1, 2026. There are no general transition rules or relief provisions for these changes, except for the narrow exceptions noted above.
Action Steps:
We recommend reviewing your current practices and planning accordingly for this upcoming change in the tax treatment of business meal and entertainment expenses. Please contact us if you have questions about how these changes may affect your business or if you need assistance updating your policies and recordkeeping.
Caution: This explanation is general in nature and should not be used for specific planning. Contact a tax professional for your specific planning needs.