One of the most commonly incurred expenses by businesses is for meals and entertainment (M&E). Regardless of its prevalence, the nuances of allowable M&E deductions can be surprisingly complicated. Further, with the uncertainty as to the future of provisions within the Tax Cuts and Jobs Act (TCJA), these rules may be changing again in 2026. As the next topic in our Tax Fundamentals Series, the following discussion can help with understanding your upcoming tax return, and can indicate whether a change in strategy may be warranted in this area.
Background
General Rule: The general rule has been and continues to be that entertainment expenses are nondeductible, and meal expenses are 50% deductible if they are not excessive and the taxpayer (or an employee) is present.
Entertainment, Amusement, or Recreation
Costs incurred related to either the activity of or facility in connection with entertainment, amusement, or recreation are generally not deductible for tax purposes. This includes “dues or fees to any social, athletic, or sporting club or organization.”1 What this means is that golf outings or dinner club memberships, while possibly decreasing net income for financial statements, would not generally reduce taxable income on a tax return. However, exceptions apply as discussed later.
Meals
Food and beverages do not fall within the aforementioned category of “entertainment,” and instead are oftentimes either fully or 50% deductible. However, taxpayers also are generally not able to deduct lavish or extravagant meals—a nuance that is not defined within guidance but instead is based on “facts and circumstances.” It is possible that the cost of meals is fully nondeductible depending on how the meal is invoiced or from where the meal is provided. Examples of these exceptions are also included next.
Rules Exemplified
Note: In the below situations, the “taxpayer” is an entity that is also an employer. The Resulting Deduction column is stated from the taxpayer’s perspective, displaying the resulting tax deductions available to the taxpayer.
| Example Situation | Resulting Deduction (Taxpayer/Employer’s Perspective) |
|---|---|
| Meal with either client or employee during which business topics are discussed. | 50% meals deduction |
| Employee travels to client by car, and stops for a meal but does not substantiate the expense of the meal. | 0% meals deduction |
| Contractor bills taxpayer separately from their other service fees for lunch paid for during time on the taxpayer’s job and provides substation under §274(d), with no intervening governing agreement stating otherwise. | 50% meals deduction |
| Refreshments at a golf event with a client where the food and drinks are invoiced and purchased separately from the tickets. Business discussions occurred at the event. | 50% meals deduction 0% entertainment deduction |
| Refreshments at a golf event with a client where the food and drinks are invoiced together as a package with the tickets. Business discussions occurred at the event. | 0% meals deduction 0% entertainment deduction |
| Taxpayer rents out a retreat center for an event with prospective clients. Meals are served at this this event, during which a presentation about the service offerings of the taxpayer occurred. | 50% meals deduction 100% deduction for meeting costs |
| There is a cafeteria on the campus of the taxpayer, and all employees receive free meals (no amount is included within their compensation). | 50% meals deduction and 50% deduction for the cost of the facility, but only through 12/31/25 |
| Taxpayer contracts with a food truck to provide free lunches to employees in the office parking lot. | 50% deduction, but only through 12/31/2025 |
| The taxpayer sends their clients and employees a gift box with an assortment of crackers and cheeses. | 0% meals deduction, but considered a gift—consult business gift deduction rules. |
| Taxpayer hosts the annual company holiday party with a meal and beverages. The event is available to all staff members of the taxpayer. | 100% meals deduction |
| At each office location, taxpayer provides an assortment of free snacks for personnel. | 50% meals deduction |
| Employee attends a conference on behalf of the taxpayer and is reimbursed for his lunch. There is an accountable plan in place. | 50% meals deduction |
| Entity sets up a booth at a local 5k fun run, and provides free granola bars to the public. | 100% deduction |
| Entity sets up a booth at an invitation-only trade show, and provides free hors d’oeuvres. | 50% meals deduction |
Documentation Requirements
Although the taxpayer may be confident in its treatment of a meal on their books, it may be disallowed upon IRS examination if appropriate documentation is not provided. As with many deductions taken on tax returns, documentation must first comply with §6001. From there, further documentation is necessary to prove that the meal meets more specific requirements. Temp. Treas. Reg. §1.274-5T(b) outlines the pieces of information that must be supported for travel and entertainment (among others), which when paired with §274(d) provide an overview to the kind of information needed for a meals deduction. This includes the amount, time, place, and business purpose of the expense.
For example, Rogers, T.C. Memo. 2014-141 denied a meals expense even though there was a “travel diary” that included receipts, bills, and listings of who Mr. Rogers met with. Therefore, the amount, date, place, and identity of the consumer was substantiated. However, because there was no corresponding documentation of the business purpose of these meals, his diary did not rise to the level of sufficient evidence.
What May Be Changing
As indicated in the chart above, it is currently possible to include a deduction for meals in certain situations that may no longer be available in 2026. Without congressional action, the following meals will no longer be deductible following December 31, 2025:
- Employer’s cost of employer-operated eating facilities (such as cafeterias, etc.)
- Meals provided for employer’s convenience on employer’s premises
- Beverages and snacks available to all employees on the employer’s premises
2025 is set to be one of the busiest years for tax policy, as many provisions within the TCJA are set to sunset after December 31, 2025. Therefore, whether the above three items are included in considerations for proposals this coming year is yet to be seen. Part of the consideration will inevitably be the offsetting “pay-fors” for included taxpayer deductions.
Understanding the difference between accountable and nonaccountable plans, options for invoicing, documentation requirements, and other requirements for deductibility could play a role in the taxable income of your company. For more information on 2025 tax policy, subscribe to our FORsights and check the Washington National Tax Office website for further updates.
- 1 Section 274(a)(2)(A)