Business Meal Deduction Rules: Navigating the Complex Landscape of What’s Changed and What’s Stayed the Same

Business meal deductions have undergone significant changes in recent years, leaving many business owners and entrepreneurs confused about what they can and cannot deduct. From the Tax Cuts and Jobs Act (TCJA) of 2017 to temporary pandemic relief measures and upcoming sunset provisions, the landscape of business meal deductions continues to evolve. Understanding these changes is crucial for maximizing your tax benefits while staying compliant with IRS regulations.

The Major Changes: What the TCJA Changed Forever

The most significant transformation came with the Tax Cuts and Jobs Act, which eliminated the deduction for entertainment expenses altogether beginning with the 2018 tax year, while most meals remained 50% deductible. This was a dramatic shift from the pre-2018 era when meals and entertainment were both eligible for a 50% tax deduction.

Entertainment remains largely non-deductible, even if it has a business connection. Examples include tickets to sports events, concerts, or theater, club memberships and initiation fees, and recreational outings like golf, camping, or sightseeing. However, there’s an important distinction: you can deduct the hot dog and Diet Coke you bought at the concession stand, as long as the meal is listed separately on the receipt.

The Temporary 100% Restaurant Meal Deduction

During the pandemic, Congress provided temporary relief to support the restaurant industry. The Consolidated Appropriations Act of 2020 allowed food or beverages purchased from a restaurant in 2021 and 2022 to be 100% deductible. However, the rules reverted to follow the Tax Cut and Jobs Act in 2023, 2024, and 2025, so such meals are back to being 50% deductible.

What Stayed the Same: The 50% Rule Continues

Most business meals in 2025 will remain 50% deductible, with specific exceptions for company-wide events (100% deductible) and DOT-regulated transportation workers (80% deductible). The core requirements for deductible business meals haven’t changed significantly:

• Business meals are still 50% deductible as long as they’re not considered lavish or extravagant, and the taxpayer is present and conducting business. This includes meals with clients, prospects, employees, or vendors where there’s a clear business purpose
• The general rule is that you can still deduct 50% of the cost of meals while traveling on business
• Many business-related meals fall under the 50% deduction rule, provided they are properly documented. Examples include client meals where business discussions occur, travel meals for employees, conference meals, late-night meals provided to employees working overtime, and board meeting snacks

The 100% Deductible Exceptions

While most business meals are limited to 50% deductibility, certain categories remain fully deductible:

• Team meals and employee functions get more generous treatment. Expenses that are primarily for the benefit of your employees (think annual holiday parties or company-wide retreats) are still 100% deductible
• Meals and beverages provided at company events—such as holiday parties or summer picnics—are 100% deductible if they are primarily for the benefit of rank-and-file employees. If your business offers free food or drinks to the general public—for example, coffee at a retail store or snacks at a promotional event—those expenses are fully deductible

Looking Ahead: The 2025 Sunset Provisions

Business owners need to be aware of upcoming changes. Some of the 50% deductible expenses will change due to TCJA sunset provisions in the near future. After 2025, expenses for the operation of on-premises food and beverage facilities and expenses for meals provided for the convenience of the employer will be completely disallowed. At this time, there appear to be no plans to defer or eliminate this sunset.

This means that companies of all sizes need to pay attention to what’s ahead when it comes to the deductibility of meals and entertainment expenses, as several other meal related expenses were cut in half due to TCJA and will be fully eliminated after 2025.

Documentation Requirements: What You Need to Keep

Proper documentation remains critical for maintaining these deductions. You need to keep documentation in case the IRS comes calling. The receipt, the names of the people at the meal, the date, and the business purpose all need to be recorded. Bonus points if you jot it down while it’s still fresh.

The IRS mandates that you keep a record of your receipts. Document who you were with, the purpose of the meal, and how it relates to your business in case of an audit. Remember, if you cannot substantiate your expenses, you will have to pay back the tax, penalties, and interest.

Getting Professional Help

Given the complexity of these rules and the potential for costly mistakes, working with experienced tax professionals is essential. For businesses in the New York and Pennsylvania area, consulting with an experienced accountant forest lake can provide the guidance needed to navigate these complex regulations while maximizing legitimate deductions.

All County Tax Resolution, with offices in Middle Island, NY and Lake Ariel, PA, exemplifies the type of professional support businesses need. They are committed to filing returns both timely and accurately, keeping clients informed of IRS decisions regarding their case, and being recognized for excellent customer satisfaction by providing prompt and professional assistance. Their approach reflects working with clients on a personal level to determine the best solutions for unique needs, then leveraging seasoned expertise to achieve the best possible results as trusted partners in success.

Key Takeaways for 2025

As we move forward, business owners should remember:

• Entertainment expenses remain non-deductible, but business meals can still provide valuable tax benefits
• Most business meals are 50% deductible when properly documented
• Employee-focused events and public promotional meals may be 100% deductible
• Significant changes are coming after 2025 that will eliminate some current deductions
• Proper documentation is more important than ever

Travel and meal expenses remain subject to strict Internal Revenue Service rules in 2025, with most business meals and travel-related food expenses being only 50% deductible, while certain employer-provided meals are 100% deductible. Proper documentation is critical for ensuring compliance and preserving deductions, especially under IRS scrutiny.

The landscape of business meal deductions continues to evolve, making professional guidance more valuable than ever. By understanding what’s changed and what’s stayed the same, and by working with qualified tax professionals, businesses can continue to benefit from legitimate meal deductions while avoiding costly compliance issues.