A lunch meeting, golf with a prospect, courtside tickets to close the deal could be powerful relationship builders but when it comes to taxes, not every expense that feels like business expense qualifies as a tax deduction.
So how do you know what’s deductible?
Under Internal Revenue Code Section 162, business expenses are deductible only if they are “ordinary and necessary” in carrying on your trade or business unless it is specifically excluded. Meals and entertainment is one of the business expenses that have some specifically excluded provisions and particularly under the Tax Cuts and Jobs Act of 2017 (TCJA).
Beginning January 1, 2026, business meals and entertainment expenses generally fall into three categories:
Key Takeaways for Business Owners
1. Track and categorize expenses carefully.
When preparing your financial statements, separate meals and entertainment into:
- 100% deductible expenses
- 50% deductible expenses
- Non-deductible expenses
Proper categorization ensures accurate tax reporting and maximizes allowable deductions.
2. Separate business and personal spending.
Consider using a dedicated business charge card especially for meals and entertainment to simplify recordkeeping and substantiate deductions.
3. Don’t let tax deductions drive relationship decisions.
Even if certain expenses are non-deductible, investing in client and prospect relationships can still deliver long-term business value.
Tax laws are complex and vary based on individual circumstances.
These strategies are general in nature and not a substitute for professional tax advice. Before implementing these strategies, it’s best to consult with a financial advisor and tax professional to ensure that they align with your specific financial situation.
Please reach out to your Brown CPA Group professional team with any questions at (847) 509-4100.