For the 2025 tax year, small businesses can deduct certain business-related meal and entertainment expenses. However, there are specific rules and limitations that apply to these deductions.
1. Deductible Expenses:
- Business-related meals provided to clients, vendors, and employees.
- Entertainment expenses such as tickets to sports events, golf outings, and movie trips.
2. Non-Deductible Expenses:
- Expenses for venues like strip clubs.
- Costs associated with alcohol.
3. Limitations and Conditions:
- The deduction for meal expenses is generally limited to 50% of the cost.
- The expenses must not be lavish or extravagant under the circumstances.
- The taxpayer or an employee of the taxpayer must be present at the furnishing of the food or beverages.
- The food or beverages must be provided to a business associate
4. Specific Exclusions:
- No deduction is allowed for entertainment, amusement, or recreation activities unless the expenses are directly related to the active conduct of the taxpayer’s trade or business.
By adhering to these guidelines, small businesses can ensure they are compliant with IRS regulations while maximizing their allowable deductions for business-related meal and entertainment expenses.
Source: Publication 463 (2023), Travel, Gift, and Car Expenses: This publication provides detailed information on the deductibility of travel, gift, and car expenses, including meals and entertainment. Publication 463
Title 26—Internal Revenue – Chapter I—Internal Revenue Service, Department of the Treasury – Subchapter A—Income Tax – Part 1—Income Taxes: This section outlines the disallowance of deductions for certain entertainment, amusement, or recreation expenditures. Title 26, Section 1.274-11
Publication 15-B (2024), Employer’s Tax Guide to Fringe Benefits: This publication provides guidance on the tax treatment of fringe benefits, including meals and entertainment. Publication 15-B