Business meals and entertainment can be legitimate business expenses, but the IRS has specific rules about what is deductible. Understanding these guidelines is essential to avoid denied deductions or IRS penalties.
IRS Tax Code Reference
The rules for deducting business meals and entertainment are outlined under:
- Internal Revenue Code (IRC) §274 Disallowance of Certain Entertainment Expenses
- IRS Publication 463 Travel, Gift, and Car Expenses
Relevant IRS Forms:
- Form 1040 Schedule C Profit or Loss from Business
Current IRS Rules for 2025
- Meals
Deductible if:
- The expense is ordinary and necessary in your trade or business under IRC §162.
- The meal is directly related to or associated with your business activities.
- You or an employee is present at the meal.
Deduction Limit:
- Generally, 50% of the meal cost is deductible.
Special 100% Deduction:
- Certain meals provided by a restaurant were temporarily 100% deductible during 2021 and 2022 due to COVID relief measures, but this has ended for 2025. The normal 50% rule applies now.
- Entertainment
Not deductible:
- Entertainment expenses like sporting events, concerts, golf outings, or theater tickets are not deductible unless they are separately billed from meals.
Exception:
- If there is a business meal during an entertainment event and the meal is separately stated, the meal portion (subject to 50%) can be deducted.
What Qualifies as a Business Meal?
- Meals with clients, prospects, vendors, or employees where business discussions occur.
- Meals during business travel.
- Meals at business seminars or conferences.
Important: Documentation must show:
- Date and time
- Business purpose
- Names of persons involved
- Amount spent
Example:
Scenario:
- You take a client out to lunch to discuss a potential contract.
- Meal cost: $120
Deduction:
- 50% of $120 = $60 deductible on your Schedule C.
Step-by-Step Compliance Checklist
- Keep all receipts for meals, noting the business purpose and attendees.
- Separate meal charges from entertainment charges whenever possible.
- Deduct only 50% of qualifying meal expenses on Schedule C (Form 1040).
- Avoid claiming deductions for entertainment, club memberships, or recreational expenses.
- Maintain records for at least three years in case of an IRS audit.
Important Points to Remember
- Meals must have a substantial business discussion to qualify.
- Lavish or extravagant meals are not deductible.
- Employee meals provided on the business premises are subject to different rules under IRC §119.
Conclusion
Business meals are still deductible in 2025 but under strict rules and entertainment expenses are generally not deductible. Proper recordkeeping is critical to protecting your deduction if the IRS audits your return.
Get professional advice to ensure you capture every valid deduction without triggering penalties.
Schedule a meeting with Anshul Goyal, CPA to optimize your business deductions and IRS compliance:
https://calendly.com/anshulcpa/
FAQs
Q1: Are meals with employees deductible?
Yes, but generally only 50% of the cost is deductible unless qualifying for certain exceptions.
Q2: Can I deduct meals while traveling?
Yes, meals during business travel are deductible at 50%, provided they are not extravagant.
Q3: Are sporting event tickets deductible?
No, entertainment costs like game tickets are not deductible, even if business is discussed.
Q4: What if the entertainment includes a meal?
Only the meal portion (if separately stated) can be deducted at 50%.
Q5: Can I deduct coffee or snacks for clients?
Yes, incidental food and beverage expenses for clients or prospects are deductible at 50%.
About Our CPA
Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the United States and an Enrolled Agent authorized to represent clients before the IRS. Anshul provides expert tax advisory services to self-employed individuals and businesses, ensuring maximum deductions and full compliance with IRS rules.