Meals and entertainment in 2025: Navigating deductions

Key tax law updates for 2025

Whether you have a dedicated tax professional in your company or not, your business must be careful to get up to speed on tax law updates related to meal and entertainment expenses. These laws continue to evolve, and 2025 may be a banner year for general tax updates for both businesses and individuals. Tax education and awareness are vital for your company to stay compliant.

Changes in deduction percentages

With the Tax Cut and Jobs Act, business meals with clients and office snacks and meals are now slated to be 50% tax-deductible. Some of these items were previously 100% deductible, spurring businesses to make changes in accounting and payroll.

Specifically, businesses can now deduct half of the cost of business-related meals if and only if an employee was present “and the food or beverages were not considered lavish or extravagant.” In addition, food and beverages must be purchased separately from entertainment if you offer them during the course of an entertainment activity.

Overview of Consolidated Appropriations Act impacts

The pandemic also ushered in changes to tax law related to entertainment and meals when the Consolidated Appropriations Act of 2020 updated allowable meal deductibility percentages for businesses.

Specifically, this short-term act allowed food or beverages purchased from a restaurant in 2021 and 2022 to be 100% deductible. The rules, however, reverted to follow the Tax Cut and Jobs Act in 2023, 2024, and 2025, so such meals are back to being 50% deductible.

Understanding deduction percentages

No matter what your industry or how often you entertain clients, understanding deduction percentages helps you when it comes to tax time. As of 2025, there are 100% deductible meal-related expenses and those that fall into the 50% and 80% deductible categories.

100% deductible meal expenses

Fortunately for businesses, a few food and beverage expenses are still 100% deductible. These meal expenses include:

• Company holiday parties that are hosted for all employees
• Food or drink that is provided to the public for free
• Meals that are offered as part of employee compensation

50% deductible meal expenses

However, most business meals in 2025 will meet the 50% deductible qualification. The following meal and entertainment expenses qualify for a 50% tax deduction:

• A non-lavish client meal where business is discussed
• Meals consumed while an employee is traveling for business
• Employee meals at conferences and meetings
• Food that is purchased for a board meeting

80% deductible meal expenses

Finally, this category is specifically for those who meet U.S. Department of Transportation (DOT) hours of service limits. For drivers who have met their limits in terms of hours on duty, 80% of their meal expenses are deductible.

This applies to interstate truck and bus drivers under Department of Transportation regulations, air transportation employees who follow Federal Aviation Administration regulations, and railroad employees under Federal Railroad Administration regulations.

With all of these categories in play, accurate payroll software is a must for organizations to track such expenses.

Recordkeeping requirements

Naturally, the IRS expects businesses to maintain solid records of expenses related to meals and entertainment, and it requires receipts or a written record for bills that total $75 or more. As a general rule, the IRS recommends that your business keep good records of receipts, purchases, expenses, assets, employment taxes, and travel, transportation, entertainment, and gift expenses.

To maintain foolproof records, here are helpful tips for your organization:

• First, ensure that the receipts used to calculate deductions are truly for activities where the primary purpose was conducting business.
• Keep and track receipts and canceled checks, bills, and the business purpose for each expense.
• It is important to include dates, times, locations, and the business contact’s name.

Setting up a standardized form and clear employee expectations will make this process easier for your business to track, update, and maintain. If your business has not already instituted a form and process for meal and entertainment expenses, there is no time like the present.

Entertainment expenses: What’s deductible?

Entertainment expenses, on the whole, are far less deductible than food and beverage expenses. While many entertainment expenses were 50% deductible prior to the passage of the Tax Cut and Jobs Act, they have been in the not-deductible category since that time.

Approved costs for entertainment deductions

In general, if you are entertaining a client by, for example, taking them to a sports game or a concert, those expenses are not deemed deductible. Entertainment expenses fall into the 0% deductible category from the IRS. Likewise, if you pay for a client’s night out on the town but don’t join in on the fun, that is also 0% deductible. Finally, if you purchase a gift for a client, you can deduct a maximum of $25 for a gift to any one client during your tax year.

However, if you attend a baseball game with the client, you can deduct the cost of hot dogs, ice cream, and sodas, even if the game tickets are non-deductible. If you are at an entertainment venue that charges you for everything on one bill, you can pay the bill and then itemize it accordingly. You can deduct 50% of the amount you pay for a client’s pizza, for instance, even if the bowling does not come with a tax deduction.

Limitations on entertainment deduction claims

The Tax Cut and Jobs Act eliminated entertainment deduction claims, unless they are specifically outlined as a component of your employee’s compensation.