The One Big Beautiful Bill Act (OBBBA) has upheld significant changes to meal and entertainment deductions that will take effect on January 1, 2026. If your business regularly provides in-office meals, breakroom snacks, or operates an employee cafeteria, you must adjust your tax planning and accounting procedures before the end of the current year.
Below is a direct outline of the deductibility rules for 2025 and the impending changes for 2026.
2025 Tax Year: The Current Rules
For the remainder of 2025, the standard deductibility limitations apply to most routine business expenses:
- 50% Deductible: Client business meals (provided a business discussion occurs and it is not lavish) and employee travel meals remain 50% deductible. Employer-provided convenience meals, such as overtime dinners and de minimis breakroom snacks, are also currently 50% deductible.
- 100% Deductible: Company-wide holiday parties and employee picnics are fully deductible, provided they primarily benefit non-highly compensated employees.
- 0% Deductible: Entertainment costs, such as sporting event tickets or golf outings, remain strictly nondeductible.
2026 Tax Year: The Disallowance Cliff
Starting January 1, 2026, the tax treatment of in-office employee meals will change significantly. The cost of employer-provided convenience meals, de minimis breakroom snacks, and the operation of employer-sponsored eating facilities will drop from a 50% deduction to completely nondeductible (0%).
The OBBBA does include narrow exceptions to this rule. Establishments that sell food and beverages to customers, such as bona fide restaurants, may continue to deduct 100% of the meals provided to their own employees. A similar 100% deduction exception applies to specific commercial fishing and fish processing operations.
Required Action Items for Your Business
To ensure accurate tax filings and survive potential IRS or FTB scrutiny, you must take the following steps:
- Segregate Your General Ledger: Ensure your chart of accounts distinctly separates 100% deductible items (holiday parties), 50% deductible items (client meals and travel), and 0% deductible items (entertainment). Do not lump these into a single “Meals & Entertainment” account.
- Maintain Strict Substantiation: Credit card statements are not sufficient. You must maintain itemized receipts that prove the exact amount, time, place, business purpose, and the business relationship of the individuals entertained.
- Evaluate Office Policies: Assess the true net cost of providing breakroom snacks and overtime meals, as these will lose their tax-advantaged status next year.
If you have any questions or require further documentation, please contact our office. Thank you for your business!
Eric M Hunt, CPA
16133 Ventura Blvd Ste 700
Encino, CA 91436
(213) 293-8123
eric@ehuntcpa.com
