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Business meals and entertainment deductions continue to evolve in 2026.

How new rules affect employer-provided meals, eating facilities, and common business expense scenarios.

Business deductions for meals and entertainment (M&E) expenses are a surprisingly complex area of the Tax Code. At their core, such rules reflect an inherent challenge in separating expenses that are business in nature from those that are, to at least some degree, something else. Accordingly, such rules overlap with employee compensation and benefits as well as personal expenses. The complexity is amplified as Congress periodically revises such rules to either provide economic support to businesses through enhanced deductions or to curtail such deductions. More specifically, Congress has modified such rules at least three times since 2017. And now in 2026. Our goal is to clarify what’s new for 2026 and what remains the same as last year.

Legislative changes leading to 2026

Over the past several years, there have been numerous changes to the deductibility of meals and entertainment expenses. These rules are largely found in Section 274 but include cross-references to several other sections of the Code. A summary of legislative activity includes the following:

• TCJA. The Tax Cuts and Jobs Act (TCJA) was enacted in 2017 and made substantial changes to the Tax Code. While that law focused on reducing tax burdens on businesses and individuals, not all changes involved tax cuts. Instead, Congress balanced lower tax rates and enhancements to some deductions with new limitations on other deductions. In summary form, the TCJA made business entertainment entirely nondeductible, reduced most business meal deductions to 50%, and modified other rules related to employee fringe benefits, all beginning in 2018. Importantly, the TCJA also made additional business meals nondeductible on deferred basis, with 2026 being the applicable year. Such meals were scheduled to include company cafeteria expenses, meals provided for the convenience of the employer, and occasional meals qualifying as de minimis fringe deductions.
• COVID-19 era. During the COVID-19 pandemic, Congress looked to M&E deductions as a way to provide further business stimulus. Thus, a temporary 100% deduction was allowed for meals provided by a restaurant. However, that deduction lapsed at the end of 2022.
• OBBB. Most recently, the One, Big, Beautiful Bill (OBBB) made additional changes to the M&E rules. These were narrow in scope and largely modified the TCJA changes that were scheduled to take effect in 2026.

The continuing evolution of such rules can understandably lead to confusion. The analysis below is intended to provide clarity about the rules applicable to 2026 and beyond.

Denial of deductions related to employer-operated eating facilities

Some businesses maintain eating facilities at or near their business premises to provide meals for employees or a combination of employees and non-employees. The TCJA imposed a new rule for 2026, which generally disallows deductions related to such meals. However, the OBBB also expanded the exceptions to this rule. Key aspects of this deduction disallowance include:

• Applicable facilities. For this purpose, an employer-provided eating facility is generally defined as one that is: (1) located on or near the business premises of the employer, and (2) revenue derived from such facility normally equals or exceeds the direct operating costs of such facility.
• Disallowed expenses. Businesses are unable to deduct any expense for the operation of the facility and any expense for food or beverage associated with such facility. This includes any food or beverages that would otherwise qualify as de minimis fringe benefits for employees.
• Exceptions. Key exceptions to the expense denial were provided by the TCJA and supplemented by the OBBB. These allow expenses to remain fully deductible if adequate and full consideration is paid for the food and beverages provided, or the expenses are for food and beverages provided to workers on certain commercial vessels or oil and gas platforms. An additional exception was provided for restaurant employee meals under Treasury Regulation Section 1.274-12(c)(2)(v)(A).
• Revenue Ruling 70-393 states that the monies spent to outfit and support a sports team are similar to monies spent on other methods of advertising; accordingly, you may deduct them as business expenses for federal income tax purposes.

This change significantly impacts businesses that operate eating facilities on the premises given the associated costs. However, the exceptions to this rule are notable and worth careful consideration. Unfortunately, these are generally tied to specific industries and places of business so they’re not expected to be widely applicable across the economy.

Meals for the convenience of the employer are non-deductible

Businesses also provide meals to employees for various reasons. One such reason is the convenience of the employer (e.g., furnishing meals to maintain productivity). From the perspective of the employee, meals provided on business premises that are for the convenience of the employer are excluded from compensation under Section 119(a). However, beginning in 2026, such meals are nondeductible by the employer.

• Applicable meals — For this purpose, disallowed meal expenses are those that: (1) are provided on the business premises of the employer, and (2) are for the convenience of such employer.
• Exceptions — The same exceptions as discussed above apply in this case. Importantly, this means that expenses related to meals sold to employees for appropriate consideration remain deductible. Moreover, deductions are available for meals in the case of commercial vessels, offshore oil or gas platforms and drilling rigs, fishing vessels, or certain fish processing facilities.

The impact of this change is expected to be felt across nearly all businesses given the pervasive nature of meals and snacks within business environments.

What didn’t change?

Other rules relating to business M&E didn’t change for 2026, including the following:

• Fully deductible meals and entertainment.

Per IRC Section 274(e), specific meals and entertainment expenses may qualify for a 100% deduction. These expenses include any expenses treated as compensation to employees per IRC Section 274(e)(2), any expenses for activities that primarily benefit non-highly compensated employees (e.g., holiday parties) per IRC Section 274(e)(4), expenses for goods, services and facilities made available to the general public per IRC Section 274(e)(7), expenses for entertainment sold to customers at full value in a bona fide transaction per IRC Section 274(e)(8), and expenses reported as income to nonemployees on Forms-1099 per IRC Section 274(e)(9).

• The following meals and entertainment expenses remain fully deductible:
  • Expenses for recreational, social, or similar activities for the benefit of employees.
  • Expenses treated as Form W-2 employee compensation or includible in the income of nonemployees.
  • Expenses for goods and services which are sold by the taxpayer in a bona fide transaction for full and adequate consideration.
  • Expenses for goods, services, and facilities made available by the taxpayer to the general public.
  • Going forward, the most common 100% deductible meals and entertainment will often relate to expenses for recreational, social, or similar activities for the benefit of employees. This provision is often applied to holiday parties, summer outings, and retirement lunches. However, these expenditures must satisfy highly compensated employee nondiscrimination requirements.

• 50% deduction for business meals.

Section 274(n)(1) generally provides that the amount allowable as a deduction for any expense for food or beverages shall not exceed 50% of the amount of the expense that otherwise would be allowable. To qualify for a tax deduction, meal expenses must meet all five of the following criteria.

1. Meals must be common and helpful in your trade or business (i.e., Ordinary and Necessary). Internal Revenue Code (IRC) Section 162(a).
2. Meals shall not be lavish or extravagant as only reasonable costs are deductible. IRC Section 274(k).
3. Meal expenses must be adequately substantiated and require proper documentation, such as receipts, attendance rosters and a clear allowable purpose. IRC Section 274(d).
4. The taxpayer or appropriate representative must be present at the meal associated with such expenses. IRC Section 274(k).
5. In addition to the above, food and beverage costs should be separately stated from any entertainment expenses where both entertainment and dining occur at one event. Treas. Reg. Section 1.274-11 and 1.274-12.

• Business meals that aren’t disallowed under the above rules generally result in a 50% tax deduction. Those include:
  • Meals with clients where an employee or representative of the business is present.
  • Meals related to business travel.
  • Certain office snacks and beverages that aren’t considered meals and aren’t related to employer-operated eating facilities.
• Entertainment. These expenses remain nondeductible as they have been since enactment of the TCJA. This includes various activities, such as golfing with clients or networking at sporting events. However, meals that are separately charged from entertainment may be 50% deductible.

Client meals vs. entertainment costs

Client meals and entertainment often go hand in hand, but it’s important to distinguish between the two if you want to deduct 50% of client meals from your income. Entertainment is not deductible, and if you lump together the cost of client meals and entertainment, you won’t be able to deduct either one.

Here are a few examples to help demonstrate the difference:

1. You take a client to dinner before a concert and pay for each separately:In this case, you can deduct 50% of the cost of dinner, but not the cost of the concert ticket.
2. You take a client golfing and get lunch at the clubhouse afterward:In this case, you can deduct 50% of the cost of lunch at the clubhouse, but not the cost of the green fees.
3. You book a package deal for client outing that includes food, drinks, and tickets:In this case, you cannot deduct any of the costs, since the food is packaged with the entertainment in one price.

What you need to substantiate your tax deduction:

• What the IRS wants on your receipt:

The receipt itself should show the total amount of the business meal, including the tip and tax. In addition to a receipt, you should also keep detailed records indicating:

• The date
• The location
• The business reason
• Who was present and their business relationship
• Keeping this information organized as you go, whether it’s in a spreadsheet or even a dedicated folder, makes it much easier to back up your deductions if the IRS ever asks.

2025 versus 2026 Examples

 

Meals & Entertainment Expense Deductibility — 2025 vs. 2026
	2025	2026	Examples
FOOD & BEVERAGES
Business meals, including client meetings	50% deductible	50% deductible
Employee travel meals	50% deductible	50% deductible	Meals away from home for business travel
Meals at business meetings of employees, shareholders, directors, or business leagues	50% deductible	50% deductible	Shareholder meeting Chamber of commerce meeting
Meals reimbursed by client — to the extent the payer substantiates the expenses to the client as required by Section 274(d)	100% deductible	100% deductible	Meals & entertainment billed to a client providing sufficient detail for the client to limit their own deduction
Meals provided at excepted work locations	100% deductible*	100% deductible	Provided to crew members of commercial vessels (either required by federal law or on vessels operating in U.S. waterways) Provided on offshore oil/gas platform, drilling rigs, or certain support camps Provided on fishing vessels (including processing & tender vessels) or at certain commercial processing facilities
“De minimis” fringe meals excluded from employee’s income or meals provided for the convenience of the employer	50% deductible	Nondeductible	Meals or bagels during meetings Occasional meals Overtime meals
Meals provided for the convenience of the employer	50% deductible	Nondeductible	Meals provided because an employee must remain on the business premises to properly perform duties or supervise others Meals provided because there are insufficient eating facilities nearby Meals furnished so employees can remain available for emergency calls during meal periods
Meals provided on or near the business premises in an employer-operated eating facility	50% deductible	Nondeductible	Employer-provided cafeteria meals for little or no cost
ENTERTAINMENT & RELATED FACILITIES
Client, referral, & other business entertainment**	Nondeductible	Nondeductible	Client golfing event Networking basketball events
Club dues	Nondeductible	Nondeductible	Country clubs
Entertainment provided at business meetings for employees, shareholders, directors, or business leagues (doesn’t apply to meals)	100% deductible	100% deductible	Shareholder meeting Employee meeting facilities & entertainment
COMBINED MEALS & ENTERTAINMENT
Employee meals & entertainment for recreational, social & similar activities (assuming highly compensated nondiscrimination rules are met)	100% deductible	100% deductible	Holiday parties Summer office events Team-building activities
Items available to the public: food, beverages, & facilities	100% deductible	100% deductible	Coffee & cookies in lobby Snacks at expo booth Public invitation events
Meals or entertainment included in employee income as compensation	100% deductible	100% deductible
Lavish or extravagant expenses	Nondeductible	Nondeductible
Nonbusiness (personal) expenses	Nondeductible	Nondeductible
GIFTS
Business gifts less than $25 (per tax year, per recipient)	100% deductible	100% deductible	Gift cards < $25 Flowers < $25 Golf balls < $25
Business gifts greater than $25 (unless included in income of recipient)	Nondeductible	Nondeductible

 

 

Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended or written by the practitioner to be used and cannot be used by the taxpayer for the purpose of avoiding penalties.

MillerMusmar CPAs is an established accounting firm in Reston, Virginia. We’ve been delivering top-notch auditing, tax, and accounting services for 28 years, both locally and globally. Our unique approach combines the strengths of a mid-sized and smaller firm to provide responsive service to our clients. Please contact us at info@millermusmar.cpa   Or call us at  703-437-8877.