As accountants, we help our clients with tax planning and tax filings. With busy season behind us, your thoughts may be on planning summer events for your employees and entertaining customers or clients on a golf course or on a boat.
While you do such things to thank employees, promote camaraderie, and build customer relationships, there are important changes to the tax code that are in effect for 2026. Many business owners and their financial and accounting staff need to be aware of these changes.
The One Big Beautiful Bill Act (OBBBA) was enacted a year ago on July 4, 2025. This bill introduced changes to the tax code affecting the deductibility of business-related meals and entertainment expenses.
We want you to be aware of this change and plan accordingly as you track affected expenses including business meals expenses in advance of filing 2026 taxes.
An overview of the impact
Deductibility of meals expenses has become more limited with updates to Internal Revenue Code (IRC) § 274. We remain hopeful that the IRS will issues regulations that provide for a “safe harbor” or other workaround to plan around this issue, but to-date, nothing has been issued.
What changed?
Up until 2026, meals furnished at an employer cafeteria or provided for the “convenience of the employer” were deductible expenses (100%). Effective 1/1/26, the deduction has been eliminated.
Reading and understanding the tax code can be onerous, so this article is intended to be a high-level overview to assist you in being aware of the changes while not accounting for every exception and nuance.
We encourage you to reach out to discuss specific questions and your situation. For example, there are always exceptions and such exceptions remain for meals provided to employees on commercial vessels, select fishing vessels, or oil rigs as they remain 100% deductible.
On-site employee meals:
A common scenario may be that your office has a break room and provides snacks and fruit for employees with occasional lunches for all employees. The annual cost of such snacks and meals was 100% deductible prior to 2026. According to the new tax code, these meal-related expenses for the convenience of the employer are no longer deductible expenses.
Off-site employee events (picnics, holiday parties, business travel, etc.):
Off-site training, employee events, and business travel (within North America) remain 100% deductible following this law change.
Meals with clients, prospective clients, or vendors:
Meals with clients, prospective clients, or vendors – whether on-site or off-site – remain deductible as business meals. 50% of these expenses are allowable as business deductions.
A review of what documentation you need to maintain:
The rules to document business meals remain the same. You must document the following for each business meals or travel expense, and be prepared to present it to the IRS upon examination:
- Amount of the expense
- Time and place of the expense
- Who attended
- Business purpose of the expense.
As always, the expense must also be reasonable and customary.
Recommendations for Planning and Categorizing Expenses for Meals and Entertainment
As your accounting firm, we are committed to protecting your hard-earned money. Your record keeping will assist in tracking and filing deductible expenses for this year and future tax returns.
Suggestions:
- Keep clear records of who attended, including employees and clients/customers.
- Plan events including tracking expenses to achieve your event goals while being aware as you plan that the meal or entertainment may not be deductible expenses for your 2026 tax return.
The above are generalizations of the impact of the new tax code. We encourage you to reach out to schedule a tax planning meeting should you have questions in order that we can assist in your planning and record keeping.