How the Meals & Entertainment Tax Act Affects your Deductions

Change #1: Expenses for Entertaining Clients Cannot Be Deducted at All

Client entertainment is 0% deductible in 2026, and no amount of business discussion or documentation changes that. The Tax Cuts and Jobs Act repealed the old “directly related” and “associated with” exceptions, effective for amounts paid or incurred after December 31, 2017. What’s left in IRC §274(a)(1) is a flat prohibition on any item tied to an activity generally considered entertainment, amusement, or recreation, or to a facility used in connection with one.

Entertainment is nondeductible now unless one of the nine exceptions in §274(e) applies. Two of them reach a growing company. Food or entertainment made available to the general public stays at 100% under §274(e)(7), which covers an open house or a trade-show booth. Anything treated as taxable compensation and reported on a W-2 stays at 100% under §274(e)(2).

The rest of the category is gone. If you’re rewriting your expense policy this year, our guide to business expenses you can’t deduct covers the neighboring lines.

What counts as entertainment

Reg. §1.274-11 applies an objective test, so your intent at the venue doesn’t rescue the deduction. Four buckets cover almost everything a growth-stage company books.

• Events and outings. Golf, concerts, theater, sporting events, ski trips, and hunting or fishing trips. All 0%.
• Facilities. Skyboxes, stadium suites, yachts, and any facility used in connection with an entertainment activity.
• Club dues. §274(a)(3) independently denies a deduction for membership in any club organized for business, pleasure, recreation, or other social purpose. Country clubs, athletic clubs, and social clubs all fail, even when every conversation inside is about a deal.
• Charitable sporting events. The entertainment element of a charity golf tournament or gala ticket is nondeductible as a business expense. Any payment above the fair market value of what you receive can still be a charitable contribution under §170 if the organization qualifies and you hold a contemporaneous written acknowledgment. Two deductions, two rulebooks.

Two receipts beat one receipt

Here’s the tactic most pages skip. IRS Notice 2018-76, later carried into Reg. §1.274-11(b)(1)(ii), lets the food and beverage portion of an entertainment outing keep its 50% deduction if the food is purchased separately from the entertainment, or if its cost is stated separately on one or more bills, invoices, or receipts. The amount charged for food has to reflect the venue’s usual selling price. You can’t inflate the food line to shrink the entertainment line.

Run the math on a $10,000 client golf outing. Greens fees, carts, and clubhouse access are $0 deductible. Add a $600 group lunch billed on its own itemized check and that lunch is 50%, or $300 back. Bundle the same lunch into one lump-sum invoice for the day and you get nothing.

So ask for it in writing before the event. A working script: “Please itemize food and beverage separately from tickets, greens fees, and facility charges, at your standard menu prices.” Send it to the venue when you book, not when you’re settling the bill.

Change #2: Employee Meals Are Half As Tax-Deductible As They Used to Be

An office manager codes the January catering invoice at 50%, the way she has every month for three years. The line moved to zero on the first of the month.

That heading was true from 2018 through 2025. It isn’t anymore. It’s no longer half. It’s nothing.

For amounts paid or incurred after December 31, 2025, IRC §274(o) denies any deduction for two things. First, the cost of operating an employer-operated eating facility described in §132(e)(2), plus the food and beverages associated with that facility. Second, meals furnished to employees for the convenience of the employer, meaning meals excludable to the employee under §119(a).

None of this was a surprise on paper. §274(o) was written into the Tax Cuts and Jobs Act in December 2017 with a delayed trigger set for amounts paid or incurred after 2025, and it sat dormant for eight years. The One Big Beautiful Bill Act, P.L. 119-21, enacted July 4, 2025, did not repeal it and did not push it out. Section 70305 of that act carved two narrow groups out of it and left everyone else inside. Our breakdown of what the One Big Beautiful Bill changed for deductions covers the rest of the package.

What went from 50% to 0% in 2026

• On-site cafeterias and micro-kitchens, including the operating costs. §274(o)(1) reaches “any expense for the operation of” the facility, which pulls in food-service staff wages, third-party vendor contracts, allocable utilities, supplies, and depreciation on kitchen equipment. A $50,000 micro-kitchen program with a part-time chef produced a $25,000 deduction in 2025. In 2026 it produces $0.
• Catered working lunches. Bringing food in so an all-hands can run straight through the meal break is the textbook convenience-of-the-employer meal.
• Meals tied to a short meal period, on-call coverage, or a remote worksite. These are the classic §119 non-compensatory business reasons, and they now sit squarely inside the disallowance.
• Routine overtime meals provided under a standing policy or a union contract. Genuinely occasional overtime meal money can still qualify as a de minimis fringe. A written policy is exactly what pushes it into §119 territory and therefore into §274(o).
• On-premises training and staff-meeting food furnished for the employer’s convenience.

The two carve-outs OBBBA added

Section 70305 opened §274(o) with an exception for expenses described in §274(e)(8) or §274(n)(2)(C). That’s the whole of the relief, and it’s narrow.

• §274(e)(8), food sold to customers. Food sold in a bona fide transaction for adequate and full consideration stays fully deductible. This is why a restaurant can still deduct the shift meals it serves its own kitchen and floor staff before, during, or after a shift.
• §274(n)(2)(C), remote and marine operations. Food and beverages for crew on commercial vessels, offshore oil and gas platforms, drilling rigs, and related support camps stay at 100%. OBBBA added fishing vessels, fish processing vessels, and fish tender vessels as defined in 46 U.S.C. §2101, plus commercial fish processing facilities in the United States north of 50 degrees north latitude.

If you’re not a restaurant or an Alaska seafood processor, neither carve-out reaches you. Assume the full disallowance and plan from there.

Your team still eats tax-free

This is the question every founder asks second, and almost no page answers it. §274(o) is a deduction rule, not an income rule. The employee-side exclusions under §119 and §132(e) are untouched. Free lunch is still tax-free to the employee. It’s just no longer deductible to the company.

So don’t start running catered lunches through payroll by reflex. Nothing goes on a W-2 unless you affirmatively choose compensation treatment.

That choice is a real lever, though. If you report the value of the food on the employee’s W-2 and withhold, §274(e)(2) and §274(n)(2)(A) restore a 100% deduction to the company. The cost is that the employee now pays income and payroll tax on food that used to be free, and you pay the employer side. Model both halves before you touch it, because for most teams the employee cost outweighs the corporate benefit.

Break-room snacks are still 50%, with one honest caveat

The statutory hook is precise. §274(o)(1) reaches §132(e)(1) food only when that food is “associated with such facility,” meaning an employer-operated eating facility described in §132(e)(2). A refrigerator, a coffee machine, and a shelf of granola bars are not an eating facility. BDO and Plante Moran both put break-room drinks and snacks in the 50% column for 2026, and an IRS technical advice memorandum from 2019 had already concluded that a break room is not a dining facility.

Now the caveat nobody wants to print. The IRS was expected to clarify what counts as an eating facility, specifically including free beverages and snacks in break rooms, and as of August 2026 no such guidance has been published. The majority reading is 50%. It is not settled.

The practical answer is to segregate snack spend in its own general ledger account starting now. If the definition lands the other way, you flip one account instead of reconstructing a year of receipts. That’s the kind of thing monthly bookkeeping catches at entry rather than at tax prep.

Same Old: The Office Party Remains Intact

The company holiday party is 100% deductible in 2026. Nothing in OBBBA or §274(o) touched it. The holiday party survived.

§274(e)(4) excepts expenses for recreational, social, or similar activities, including the facilities for them, primarily for the benefit of employees other than highly compensated employees. Reg. §1.274-12(c)(2)(iii) carries the same standard into the food and beverage rules, so a qualifying party escapes both the entertainment disallowance in §274(a) and the 50% haircut in §274(n)(1). §274(k)(2)(A) also lifts the taxpayer-present and not-lavish tests that police ordinary business meals.

What’s covered reads broadly: catering, the bar, venue rental, a band or DJ, decorations, and the annual summer picnic or team-building outing.

Here’s the contrast worth remembering. In 2026 you can deduct 100% of a $6,000 holiday party and 0% of the $1,200 in catered lunches you bought the same month. Same food, same people, different code section.

The four conditions you actually have to meet

1. Invite everyone. The event has to be primarily for the benefit of employees who aren’t highly compensated. An executives-only dinner fails. A partner retreat fails. An all-hands holiday party passes.
2. Watch the highly compensated line. For 2026 the threshold under §414(q)(1)(B) is $160,000, unchanged from 2025, plus the more-than-5% owner test. An event that discriminates in favor of highly compensated employees, officers, shareholders, or 10%-or-greater owners isn’t treated as primarily for the benefit of employees.
3. Don’t run an all-family payroll. If every employee is a family member of the owner, attribution rules mean the event is for the owners, not for employees, and the 100% treatment fails.
4. Keep it social, not operational. A recreational or social event qualifies. A working lunch doesn’t, and in 2026 the working lunch is the category that went to zero. A client-heavy guest list is the other common trap, because it starts pulling the event back toward entertainment.

Keep gifts out of the party account

Employee gifts run on a separate rulebook, and mixing them into the party general ledger account is how a clean 100% deduction turns into an audit conversation. Cash and cash-equivalent gifts, including gift cards of any amount, are taxable wages. They belong on the W-2 with withholding, not in the party line. Non-cash business gifts to any one individual are capped at $25 per recipient per year under §274(b), a limit that hasn’t been indexed since 1962, so a $150 gift basket produces a $25 deduction.

Code gifts, bonuses, and party costs in three different places. Our post on holiday bonuses and their tax treatment walks through the payroll side.

Cheat Sheet: 2025 Guide to Writing Off Meals and Entertainment

Updated for the 2026 tax year. Below is the whole meals and entertainment deduction landscape in one table, with three eras side by side and the governing code section on every row so you can check the work.

Expense category	Pre-2018	2018 to 2025	2026	Governing cite
Entertaining clients: golf, concerts, sporting events, skyboxes, ski trips	50%	0%	0%	§274(a)(1)
Business, athletic, or social club dues	0%	0%	0%	§274(a)(3)
Tickets to a charitable sporting event or gala	100%	0%	0% as a business expense. Excess over fair market value may qualify under §170	§274(a)(1), §170
Meal with a client, customer, prospect, or vendor, taxpayer or employee present and not lavish	50%	50%, or 100% if bought from a restaurant in 2021 or 2022	50%	§274(n)(1), §274(k)(1), Reg. §1.274-12(a)(1)
Food and beverages at an entertainment event, purchased separately or separately stated on the invoice	50%	50%	50%	Reg. §1.274-11(b)(1)(ii), Notice 2018-76
Food and beverages bundled into one entertainment invoice	50%	0%	0%	Reg. §1.274-11(b)(1)(ii)
Meals furnished on premises for the convenience of the employer	100%	50%	0%	§274(o)(2), cross-referencing §119(a)
Employer-operated eating facility or on-site cafeteria, including operating costs such as staff wages, vendor contracts, utilities, and equipment depreciation	100%	50%	0%	§274(o)(1), cross-referencing §132(e)(2)
Break-room snacks, coffee, and soft drinks not associated with an eating facility	100%	50%	50%, pending IRS guidance on the definition of eating facility	§274(n)(1), §274(o)(1)
Occasional overtime meal money, genuinely de minimis	100%	50%	50% if truly occasional, 0% if provided under a standing policy or contract	§132(e)(1), §274(o)
Company-wide holiday party, summer picnic, or team outing primarily for non-highly-compensated employees	100%	100%	100%	§274(e)(4), §274(n)(2)(A), Reg. §1.274-12(c)(2)(iii)
Meals sold to customers for adequate and full consideration, including restaurant shift meals	100%	100%	100%	§274(e)(8), preserved inside §274(o) by OBBBA §70305
Food treated as taxable W-2 compensation, or 1099 income to a non-employee	100%	100%	100%	§274(e)(2), §274(e)(9), §274(n)(2)(A)
Meals while traveling away from home overnight on business, actual cost or per diem M&IE	50%	50%, or 100% if from a restaurant in 2021 or 2022	50%	§274(n)(1), §274(d), Notice 2025-54
Meals at a business league, chamber, or trade association meeting or convention	50%	50%	50%	§274(e)(6), §274(n)(1)
Meals at a business meeting of employees, stockholders, agents, or directors	50%	50%	50% off premises, 0% if the meal is a §119 convenience meal or comes from an employer-operated facility	§274(e)(5), §274(n)(1), §274(o)
Food and beverages made available to the general public, such as an open house or trade-show booth	100%	100%	100%	§274(e)(7), Reg. §1.274-12(c)(2)(iv)
Food and beverages on commercial vessels, offshore platforms, drilling rigs, support camps, fishing vessels, and fish processing facilities north of 50 degrees north latitude	100%	100%	100%	§274(n)(2)(C), expanded by OBBBA §70305
Lavish or extravagant meals, or meals where neither the taxpayer nor an employee was present	0%	0%	0%	§274(k)(1)(A) and (B), Reg. §1.274-12(a)(1)

The 100% restaurant rule is gone, and it’s still sitting in a lot of charts of accounts

The Consolidated Appropriations Act, 2021 temporarily doubled the business meal deduction to 100% for food and beverages provided by a restaurant. That relief applied only to amounts paid or incurred before January 1, 2023. Two tax years, then it expired.

It keeps causing trouble anyway. Bookkeepers who learned the rule in 2021 still code restaurant receipts at 100% out of habit, and the error compounds quietly across a year of transactions. Worth noting too: the definition of “restaurant” for that temporary rule specifically excluded employer-operated eating facilities, so it never applied to the cafeteria in the first place.

If you’re auditing your own categories, start with our overview of business tax deductions and the running list of deductible business expenses.

Quick Answers to Your Questions About Meals and Entertainment Deductions:

The percentage is the easy part. The audit risk lives in §274(d), which holds meals to a stricter substantiation standard than almost any other business expense. These are the questions founders ask once they’ve read the table.

What a business meal has to clear before it’s 50% deductible

Pull §274(k), §274(n), and Reg. §1.274-12(a)(1) together and five conditions have to be true at once.

1. The expense is ordinary and necessary under §162(a) and paid in carrying on a trade or business.
2. It isn’t lavish or extravagant under the circumstances. There’s no dollar threshold in the regulation. It’s a facts-and-circumstances test measured against what’s reasonable for your business.
3. You or an employee of yours is present when the food is furnished. Sending a gift basket or paying for a dinner you don’t attend fails this one.
4. The food goes to a business associate: a current or potential customer, client, supplier, employee, agent, partner, or professional adviser.
5. If it’s served at or during an entertainment activity, the food is purchased separately or separately stated on the bill at the venue’s usual selling price.

What the meals and entertainment deduction requires you to prove

§274(d) wants adequate records, or sufficient evidence corroborating your own statement, covering the amount, the time and place, the business purpose, and the business relationship of the people who benefited. As a checklist:

• Amount, with the tip stated separately from the food and beverage total.
• Date of the expense.
• Place, meaning the name and location of the restaurant or venue.
• Business purpose, one line is plenty. “Q3 renewal discussion” beats “lunch.”
• Who was there, by name, and their relationship to the business.
• An itemized receipt, not the credit card slip. The card statement shows the amount but never the food-versus-alcohol split and never the purpose.
• Contemporaneous entry. Records made at or near the time carry far more weight than a spreadsheet rebuilt in March.

Receipts aren’t strictly required for non-lodging expenses under $75, but the amount, date, place, purpose, and attendees still have to be recorded. Keep the receipt anyway. Our guide to tracking business expenses covers the workflow.

What 2026 costs you, in dollars

• $400 client dinner with three prospects. 50% in 2025, 50% in 2026. Deduct $200 either year. That same dinner would have been $400 in 2021 or 2022.
• $1,200 catered team lunch for 30 people. $600 deductible in 2025, $0 in 2026. Run it weekly and roughly $31,000 of deductions vanish over a year.
• $6,000 company holiday party. $6,000 in 2025, $6,000 in 2026. Still the best-treated line in the category.
• $200 a month in snacks and coffee, $2,400 a year. $1,200 in 2025 and $1,200 in 2026 on the majority reading, versus $2,400 before 2018. If the snacks sit inside a staffed company kitchen, treat it as $0.
• $85 travel dinner on an overnight trip. $42.50 either year. Travel meals never entered §274(o).

Per diems, and what they don’t cover

You can reimburse travel using federal per diem rates instead of tracking every meal receipt. Under IRS Notice 2025-54, for travel on or after October 1, 2025 through September 30, 2026, the high-low method is $319 per day for high-cost localities and $225 elsewhere in the continental US, covering lodging plus meals and incidentals. Meals and incidentals only run $86 per day in high-cost localities and $74 elsewhere. The transportation-industry special rate is $80 per day in the continental US and $86 outside it.

Two limits matter. The per diem substantiates amount, time, and place. It does not substantiate business purpose, so you still write that line. And the meals portion is still subject to the 50% limit under §274(n)(1). For the broader travel picture, see deducting business travel expenses.

Fix the chart of accounts in January, not next March

The single most useful thing you can do this year is split meals into three general ledger accounts at the point of entry.

• Meals, 100% deductible. Holiday parties, team social events, food sold to customers, and food treated as W-2 compensation.
• Meals, 50% deductible. Client meals, travel meals, business-league meetings, and break-room snacks.
• Meals, 0% deductible. Entertainment, convenience-of-the-employer meals, and eating-facility operating costs.

Then train whoever codes expenses so the classification happens on entry. Companies with high transaction volume can use statistical sampling under Rev. Proc. 2011-42 rather than reviewing every receipt, and companies running an on-site facility should commission a cost study to separate the now-nondeductible operating costs from general overhead.

The company that fixed its coding in Q1 has a clean §274(o) position at year-end. The one that fixes it next March is reconstructing twelve months of receipts. At indinero, the team that codes your books is the same team that files the return, so the categories get set once and hold, and business tax services sits in the same monthly engagement as the bookkeeping.

Frequently asked questions

These are the questions founders ask before year-end, usually after the coding is already twelve months old. If you’re starting further back, our explainer on what a tax deduction actually is covers the fundamentals first.

Are employee meals still 50% deductible in 2026?

No, employee meals furnished for the employer’s convenience went to 0% deductible for amounts paid or incurred after December 31, 2025. IRC section 274(o) reaches on-site cafeterias, catered working lunches, and the operating costs behind them, including food-service wages and vendor contracts. The employee side didn’t change. Free lunch is still tax-free to your team under section 119. It’s just no longer deductible to the company. Indinero’s tax team has been re-coding client expense accounts since January.

Are business meals 100% deductible in 2026?

No, business meals are 50% deductible in 2026 under IRC section 274(n)(1). The 100% restaurant deduction applied only to amounts paid or incurred before January 1, 2023, and it hasn’t come back. To hold the 50%, you or an employee has to be present, the meal can’t be lavish, and the food goes to a business associate. Bookkeepers who learned the rule in 2021 still code restaurant receipts at 100%, and the error compounds quietly across a year.

Can I write off groceries on my taxes?

No, personal groceries are never deductible, and groceries stocked for your team are only 50% deductible in 2026, not 100%. Break-room food and drinks sit at 50% under IRC section 274(n)(1) because the de minimis fringe exception came out of the code in 2018. If those same groceries stock an employer-operated eating facility, section 274(o) takes them to 0%. The IRS hasn’t yet defined what counts as an eating facility, so the 50% position is the majority read, not a settled one.

Can I deduct meals if I’m self-employed and eating alone?

Usually no, a meal you eat alone is a personal expense, not a business deduction, even when you’re working through it. The rules require a business associate on the other side of the table, meaning a client, prospect, vendor, or employee, under Treasury Regulation 1.274-12. Travel is the exception. A meal you buy while away from home overnight on business is 50% deductible under IRC section 274(n)(1), whether you track actual cost or use the federal per diem.

Are meals while traveling for business still deductible in 2026?

Yes, travel meals are still 50% deductible in 2026 under IRC section 274(n)(1), unchanged by the new employer-meal rules. A meal an employee buys away from home overnight isn’t a section 119 convenience meal and isn’t tied to an eating facility, so section 274(o) never reaches it. The 50% limit applies whether you reimburse actual cost or use the federal per diem, and the per diem substantiates amount, time, and place but never business purpose.

Do I need an itemized receipt, or is a credit card statement enough?

You need the itemized receipt, since a credit card statement alone doesn’t satisfy IRC section 274(d) for a business meal. Section 274(d) wants the amount, the date, the place, the business purpose, and the names and business relationships of everyone who benefited. The card slip carries the amount and nothing else. Records made at or near the time of the meal hold up far better than a spreadsheet rebuilt in March.