How to deduct meals and entertainment in 2025

Understanding how to write off meals and entertainment expenses can provide significant tax benefits for small business owners. This guide will help you navigate the latest changes in 2025, ensuring you maximize your deductions and stay compliant with tax laws.

Meals and entertainment expenses can be a significant part of your business operations, whether you’re taking clients out to lunch, providing meals for your employees, or hosting events. However, navigating the tax rules for these deductions can be complex and confusing, especially since the Tax Cuts and Jobs Act since 2018. The IRS has specific guidelines about what qualifies as a deductible expense, and understanding these nuances is crucial.

For instance, while you can deduct 50% of the cost of business meals, entertainment expenses are generally non-deductible. This distinction can be tricky, especially when business meals and entertainment often overlap in real-life scenarios. While tax laws can change, the current deduction rules have remained consistent since 2018, with a temporary change in 2021-2022 under the CAA.

Take, for example, the changes brought by the Consolidated Appropriations Act (CAA) in 2021 ^[1]. To support restaurants during the COVID-19 pandemic, the act temporarily increased the deduction for business meals from 50% to 100% ^[2]. However, as of 2024, this has reverted to the standard 50% deduction.

If you mistakenly assumed the 100% deduction was still in place, you might overstate your deductions and face IRS scrutiny during tax season – that would be a real headache during tax season, right?

Knowing the latest changes and how to document these expenses properly can help you maximize your deductions and avoid costly mistakes during tax season. In this blog, we’ll break down what counts as deductible meals and entertainment in 2025, highlight the latest changes, and show you how to keep your finances in check.

What are meals and entertainment deductions?

Meals and entertainment deductions allow businesses to reduce their taxable income by counting certain expenses as business costs.

Meals deductions

Meals deductions apply to expenses incurred when you take clients, customers, or employees out for meals where business discussions take place.

For example, a lunch meeting with a potential client to discuss a new project or a dinner with your team to strategize for an upcoming campaign can be partially deductible. Here are the key points:

• Business-related meals: You can generally deduct 50% of the cost of meals directly related to your business activities. This includes meals with clients, customers, and employees, provided there is a clear business purpose.
• Employee meals: Meals provided to employees, such as during office meetings or while traveling for business, are also 50% deductible. This helps maintain a productive and motivated workforce.
• Company events: Meals provided during company events, like holiday parties or team-building activities, can be fully deductible if they meet certain criteria.

Entertainment deductions

Entertainment expenses used to be deductible, but the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated most deductions for entertainment expenses. This means that while you can still entertain clients and employees, you generally cannot deduct these costs.

Here’s what you need to know:

• Non-deductible entertainment: Costs associated with entertaining clients or employees, such as tickets to concerts, sports events, or theater shows, are generally not deductible. This includes any portion of the expense related to entertainment, even if business discussions occur before, during, or after the event.
• Exceptions: There are a few exceptions where certain entertainment expenses might be deductible if they are considered as compensation to employees and are reported on their W-2 forms.

Benefits of these tax deductions

These write-offs are beneficial for two main reasons: they help lower tax liability and are crucial for building and maintaining strong relationships with clients and employees.

Lowering tax liability

1. Reducing taxable income: By deducting eligible meals and entertainment expenses, businesses can effectively lower their taxable income.
   
   For example, if a business spends $5,000 on deductible meals and entertainment expenses, this amount can be subtracted from the total income, reducing the taxable income and resulting in a lower overall tax bill​.
   
2. Maximizing deductions: Small business owners can maximize their allowable expenses by understanding specific rules and limits.
   
   For instance, while most business meals are 50% deductible, some, like company-wide parties, can be fully deductible. Accurate categorization and documentation ensure that businesses benefit fully from these tax deductions without overstepping IRS guidelines​​.
   
3. Strategic financial planning: Incorporating meals and entertainment deductions into a financial strategy allows for more accurate budgeting and forecasting. Knowing which expenses can be written off helps businesses plan activities and allocate resources more efficiently throughout the year, enhancing overall financial management​​.

Building and maintaining relationships with clients and employees

1. Client engagement: Taking clients out for meals or hosting events fosters deeper engagement. These activities allow for more relaxed and personal interactions, which can help solidify deals, gain client trust, and foster loyalty. This can lead to long-term business success by strengthening client relationships​​.
   
2. Employee morale and retention: Providing meals during meetings or organizing company events contributes to a positive work environment.
   
   When employees feel valued and appreciated, their job satisfaction increases, leading to higher morale and better retention rates. Happy employees are more productive, which directly impacts the business’s performance​​.
   
3. Networking and team building: Hosting company events and gatherings not only boosts team spirit but also provides opportunities for networking and collaboration.
   
   These events encourage employees to interact outside the usual work setting, fostering stronger interpersonal relationships and a more cohesive team, which enhances collaboration and innovation within the business​​.
   
4. Marketing and public relations: Offering free food and drinks at public events or promotional activities can enhance a company’s image and attract potential clients.
   
   These gestures show goodwill and can be a strategic part of marketing and public relations efforts, creating a positive impression of the business in the community​.

By mastering the nuances of meals and entertainment deductions, small business owners can enhance their financial strategy, ensure compliance with tax laws, and ultimately improve their business’s bottom line.

Deductible and non-deductible expenses

It’s crucial to know which expenses can be deducted and which ones can’t, as having an understanding of deductible and non-deductible expenses gives you an upper hand come tax season.

It helps you play by the rules and make the most of all those sweet tax benefits. Think avoiding penalties and retaining your hard-earned money in your pocket!

Deductible expenses

• Business-related meals 
  Taking clients or potential customers out to eat for a business reason? Great news – it’s usually deductible! Whether it’s breakfast, lunch, or dinner, if you’re talking business, you can count it as a deduction.
• Employee meals
  Providing meals for your team during meetings or travel? you can count it as a deduction!

Non-deductible expenses

• Personal meals
  Sorry to break it to you, but meals just for fun or enjoyment aren’t deductible. This includes meals with business associates that are just for enjoyment purposes. 
• Indulgent or lavish expenses
  Dreaming of deducting that super luxurious business trip or extravagant event? Well, don’t, because the IRS isn’t a fan of extravagance, so those indulgent expenses won’t count as deductions. You need to keep it reasonable.
• Entertainment expenses
  Hosting clients or business pals for some fun? You can no longer deduct the costs! Whether or not there was a business discussion before, during, or after an entertaining concert, sporting game, or theatre show, these expenses are non-deductible.

Business expenses vs. personal expenses

The IRS is very stringent when it comes to reporting business expenses accurately – it affects your tax deductions big time. So, keep a sharp eye on separating business and personal expenses.

Knowing what counts as a business-related meal and what doesn’t can make a huge difference for your business. By getting it right, you’re not only staying on the right side of the tax rules but also protecting your profits.

Following are some of the advantages of maintaining clarity between business and personal expenses:

1. Staying tax-compliant: Keeps your business in line with tax rules to avoid hefty penalties and audits.
2. Boosting deductions: Make the most out of your tax deductions and reduce your taxable income.
3. Clear finances: Tracks expenses and budgets smartly to give you financial clarity, making it easier to report your finances accurately.
4. Audit readiness: If the IRS comes knocking for an audit, you’ll be ready with well-organized documents and neatly categorized expenses.

Fully deductible meals and entertainment in 2025

By knowing which categories of meal expenses are 100% deductible, you can reduce your taxable income and improve your business’s financial health while ensuring compliance with IRS rules. Here are the meal and entertainment expenses that are 100% deductible: 

Company events and gatherings

The IRS encourages company events and gatherings that boost team spirit and make work fun. So, all the expenses you pay for these events are 100% deductible.

Free food and drinks for the public

Whether you’re giving away snacks to be nice or to drum up business, the IRS likes it. These costs are fully deductible, so snack away!

Employee meals

If you provide free meals to employees and report the value on their W-2 forms as taxable income, these meals become 100% deductible. However, if the meals are not included in taxable wages, they typically fall under the 50% deduction rule.

You can strategically maximize your tax benefits and foster a healthy environment in your company by leveraging these 100% deductible expenses. It’s a win-win!

50% deductible meals and entertainment in 2025

While 50% deductible expenses aren’t as awesome as fully deductible expenses are, they’re still extremely helpful, so make sure you track and report them accurately. Here are the examples of expenses that are 50% deductible:

Client meetings

Want to impress your client and confirm a deal with them over a meal? Opt for a modest restaurant and get a 50% deduction on the bill. This keeps your client happy and your tax bill manageable.

Employee meals at conferences

If you’re covering meals for employees at a conference, you can deduct 50% of the cost. However, keep in mind that the conference ticket price itself is NOT deductible as a meal expense.

Employee travel meals

When your employees are on the road for work, you can deduct 50% of their meal expenses, as long as the travel meets the IRS’s definition^[3] of a qualifying business trip. The travel must require an overnight stay away from the employee’s tax home.

Board meetings

Food served during board meetings is usually 50% deductible. These meetings help steer your business in the right direction, so it’s worth it!

Late-working employee dinners

Treating your hardworking employees to dinner? It’s a great way to boost their morale and 50% deductible so you can keep your business running smoothly as well.

Changes in meal and entertainment deductions through the years

If you’ve been keeping an eye on your meal and entertainment deductions from previous years, you might have noticed some changes in the amounts. 

One of the most significant changes in recent years, particularly with the passage of the 2018 Tax Cuts and Jobs Act ^[4], is that entertainment expenses are no longer deductible. This shift has a direct impact on businesses that previously utilized entertainment deductions as a means of building client relationships and promoting their services.

That’s right – no more writing off those concert tickets or sporting events. But hey, don’t worry, not everything’s changed.

Below, we’ve laid out all the changes in meals and entertainment deductions so you can easily spot what’s different and what’s stayed the same.

• Entertaining clients: Remember those days when you could treat your clients to a round of golf or surprise them with concert tickets? Well, unfortunately, those fun outings aren’t deductible anymore.
• Business meals with clients: The tax rules have tightened since 2021 and 2022. Previously, you could fully deduct client meal expenses, but now it’s only 50%. So, you’ve got to be a bit cautious when planning these meetings.
• Office snacks and meals: You can still deduct 50% of the cost of keeping your team fed during office hours and meetings. 
• Company-wide parties: Gatherings hosted by companies are still 100% deductible, provided they’re held for team-building or promoting company culture.
• Meals and entertainment expenses included as employee compensation: If you’re including meals and entertainment in your employee benefits package, you can still deduct the full cost. Good to know!

Check out this chart as it adds more clarity on how changes in meals and entertainment deduction have evolved over the years.

Documentation and receipts

Keeping accurate records is key to making sure you get all the deductions you’re entitled to for meal and entertainment expenses.

Without proper documentation, you could end up facing unexpected tax bills and penalties if the IRS decides to take a closer look. Plus, it adds credibility to your business expenses, showing you mean business when it comes to financial responsibility.

Here are the IRS requirements for meal receipts.

• Total amount (it can include delivery fees and tips)
• Time and place of the meal
• Purpose of expense
• Clarification of the relationship between the taxpayer and the individual being fed

Here are simple tips for you to document and keep all the information in check:

• Keep track of all your receipts for meals and entertainment expenses, making sure to note down the date, location, amount, and who was there for each business activity.
• Record the purpose of each expense to show it’s a legitimate deduction.
• Don’t forget to hang onto your credit card statements – they’re handy as extra proof.
• If your expenses are part of a business trip, keep records of everything from boarding passes to hotel bills. It’ll make your deduction claims stronger.

The bottom line

Understanding how to deduct meals and entertainment expenses in 2024 is essential for managing your business finances effectively. By knowing which expenses are deductible and which are not, you can maximize your tax benefits and avoid costly mistakes during tax season. 

With CoCountant’s accounting and bookkeeping services, you can keep accurate documentation of your expenses and stay up-to-date with changes in tax regulations. With our expert guidance, you can confidently navigate the complexities of deductions, ensuring your business remains compliant and successful.