What changed in 2018 and what it means for your business meals

If you've been in business since 2018, you probably know that entertainment expenses are no longer deductible. What you might not know? The meals served at those same events don't have to disappear with them.

Many business owners assume that if they can't deduct the baseball game, they can't deduct the hot dogs either. Not true. With the right approach, you can still claim a 50% deduction on meals and sometimes even 100%, even when entertainment is involved.

 

The Golden Rule: Keep Meals Separate from Entertainment

Here's the simple version: If you can show the IRS that food and beverages were purchased separately from the entertainment, you can deduct the meal portion.

 

What this looks like in practice:

❌ Non-deductible: You buy a suite package at a basketball game for $2,000. The price includes tickets, the suite rental, and catering - all bundled together on one invoice. Because nothing is separated, the entire $2,000 is non-deductible.

✅ Partially deductible: You rent the same suite for $1,500 and receive a separate invoice for $500 in catering costs. The $1,500 is still non-deductible entertainment, but the $500 in food qualifies as a business meal - giving you a $250 deduction (50% of $500).

The difference? One itemized invoice. Same event, better documentation, real tax savings.

 

Five Situations Where You Can Still Deduct Meals

Even with entertainment expense restrictions, several scenarios allow you to preserve meal deductions:

1. Business Meals Near Entertainment: Taking a client to dinner before the game? That's still a deductible business meal—as long as you purchase it separately and can show it had a legitimate business purpose. The fact that you're headed to a concert afterward doesn't change the tax treatment of dinner. What you need: A separate receipt, documentation of who attended, and the business purpose of the meal.
2. Company-Wide Social Events: Your annual holiday party or company picnic comes with good news: the food and beverages are 100% deductible (not just 50%) when the event primarily benefits your broader team—not just executives or owners. The key requirement: The event should be open to all or most employees, not limited to highly compensated staff.
3. Refreshments for Customers and Visitors: Hosting an open house? Providing refreshments at a grand opening? Food and beverages available to the general public are fully deductible. Important distinction: "General public" means actual customers and visitors—not your own employees or contractors coming to a private company function.
4. Meals You Sell to Customers: If you operate a restaurant, catering business, or any company that sells food as part of your product or service, the cost of those meals is 100% deductible as cost of goods sold. This one's straightforward—it's inventory, not entertainment.
5. Meals Treated as Employee Compensation: If you include the value of a meal in an employee's taxable wages (with proper withholding), or report it on a 1099 for a contractor, you can deduct it as compensation rather than as a meal expense. This gives you a full deduction instead of the 50% limit.

Travel Meals: A Different Category Entirely

Meals while traveling for business remain 50% deductible under the standard rules, and they're not considered entertainment. But here's where business owners often stumble: you need detailed, contemporaneous records.

 

For every business travel meal, document:

• The amount spent
• The date and location
• The business purpose
• Who was present

The IRS doesn't allow estimates or reconstructed records for meal expenses, so keep those receipts and make notes while the details are fresh.

 

Documentation: Your Deduction Depends on It

The separation strategy only works if you can prove it. Here's your action plan:

When attending entertainment events with meals:

• Request separate invoices for food and catering costs
• Avoid all-inclusive packages when possible—or ask for itemized billing
• Keep receipts that clearly distinguish meal costs from tickets or admission
• Document the business purpose and attendees, just like any business meal

Critical reminder: The IRS has eliminated the rule that allowed courts to estimate deductions when records were incomplete. For meals and entertainment, if you can't document it properly, you lose the deduction entirely. No exceptions.

 

A Heads-Up for 2026

Starting in 2026, on-site employer-provided meals (like office cafeterias and break room snacks) will no longer be deductible at all. While this is separate from the entertainment issue, it's another reason to carefully categorize your meal expenses now.

Our recommendation: Set up your accounting system to track meals in distinct categories:

• 100% deductible (employee events, meals sold to customers)
• 50% deductible (business meals, travel meals)
• Non-deductible (entertainment, and soon, on-site convenience meals)

This makes tax time easier and ensures you're capturing every legitimate deduction.

 

The Bottom Line

Entertainment expenses may be off the table, but meal deductions don't have to disappear with them. The key is separation—both in how you purchase these expenses and how you track them.

Three takeaways to remember:

1. Request separate invoices for food whenever entertainment is involved
2. Keep detailed records at the time of the expense, not months later
3. Know which types of meals qualify for 50% versus 100% deductions

Getting this right requires planning and good record-keeping, but the tax savings are real—and worth the extra effort.

 

Questions about maximizing your meal deductions while staying compliant? We're here to help. Contact our office to review your current practices and make sure you're not leaving money on the table.