Hey everyone! I’m Bette Hochberger, CPA, CGMA. If you’re a business owner, you know that meals and entertainment expenses can add up quickly, especially when managing client relationships or hosting team events. The good news? You may be able to deduct some of these expenses on your taxes. However, the rules for deducting meals and entertainment expenses can be a little tricky, especially as tax laws evolve. In today’s #TaxTipTuesday, I’ll break down the 2025 guidelines to help you understand what’s deductible and what’s not.

What Are Meals and Entertainment Deductions?

Meals and entertainment deductions allow businesses to reduce taxable income by writing off certain expenses related to client meetings, team-building events, or other business-related activities. But not all expenses qualify, and there are specific rules you need to follow to avoid issues with the IRS.

What’s Deductible in 2025?

Here’s a breakdown of what you can (and can’t) deduct when it comes to meals and entertainment expenses in 2025:

Business Meals:

  • 50% Deductible: Most business-related meals, such as those with clients, vendors, or employees, are 50% deductible as long as they are directly tied to business purposes. This includes meals at restaurants or catered meals during business meetings.
  • 100% Deductible: Meals provided to employees for the employer’s benefit (e.g., meals during working hours to keep employees on-site) or meals included as part of a company event (like a holiday party) are generally fully deductible.

Entertainment Expenses:

  • In most cases, entertainment expenses (e.g., tickets to concerts, sporting events, or other recreational activities) are not deductible.
  • However, if entertainment is part of a business event (such as a seminar or networking event) and the expenses are itemized separately from food and beverages, the meal portion may still qualify for a deduction.

Travel Meals:

  • Meals consumed during business travel are typically 50% deductible. This includes meals purchased while traveling for work-related purposes, as long as the travel meets the IRS guidelines for business travel.

Key Rules to Follow

To ensure your meals and entertainment deductions are valid, keep these rules in mind:

The Expense Must Be Business-Related

Meals and entertainment must have a clear business purpose. For example, a meal with a client to negotiate a deal qualifies, but a casual dinner with friends does not.

Documentation Is Essential

Always keep detailed records of your expenses. Include:

  • Receipts showing the date, location, and cost of the meal or entertainment.
  • Notes on the business purpose of the expense (e.g., “Lunch with client to discuss project X”).
    Proper documentation is crucial in case of an audit.

No Lavish Spending!

The IRS doesn’t allow deductions for overly extravagant expenses. Keep your meals and entertainment reasonable and aligned with your business’s size and income.

Separate Meals from Entertainment

If you’re hosting an event that involves both meals and entertainment, itemize the expenses. Only the meal portion may be deductible.

Best Practices for Tracking Expenses

  • Use a Business Credit Card: This makes it easy to separate personal and business expenses, and you’ll have a clear record of all transactions.
  • Invest in Expense-Tracking Software: Tools like QuickBooks or Expensify can categorize expenses and generate reports to simplify tax filing.
  • Review IRS Updates Annually: Tax laws change. Stay informed about any updates to meals and entertainment deductions to ensure compliance.

Deducting meals and entertainment expenses can be a valuable way to save on taxes, but it’s important to follow the rules carefully. For 2025, most business meals are 50% deductible, with some exceptions for employee-related meals that are 100% deductible. Entertainment expenses, on the other hand, are largely non-deductible unless they meet specific criteria. Always keep detailed records, separate meal and entertainment costs, and consult a tax professional if you’re unsure about any deductions.

By staying informed and organized, you can maximize your allowable deductions while avoiding any issues with the IRS. After all, every little bit helps when running a business!

I’ll see you next time.