Business Meal Deductions: Current Rules and Key Reminders

The Shift in Law

In 2017, the passing of the Tax Cuts and Jobs Act (TCJA) brought about changes to the deductibility of meals. Despite its enactment in 2017, one provision relative to the deduction for meals is just now going into effect in 2026. Historically, meals provided for the convenience of the employer were eligible for a deduction equal to 50% of the cost of the meal. This could include, among other things, office snacks and dinners provided to employees working late.

What Remains

Although this change to employer provided meals seems immense, most other business meal related deductions will stay as they are. Business meals with clients will remain 50% deductible as long as they are directly related to business ventures. Company-wide and employee events are 100% deductible, given that they are purposed for benefiting the employees. Meals during business travel will also continue to have a 50% deductibility rate. Despite these laws staying the same, recording these transactions should become more vigorous, especially if the situation closely resembles employer convenience meals.

Looking Behind, Looking Ahead

To know the best course of action going forward, employers should examine their convenience meals expense from years past. Considering that these past amounts were given the benefit of a 50% deduction, it must be decided whether those expenses should be continued this year without the tax deduction. In many cases, the benefit of continuing to provide such meals may outweigh the loss of the deduction.

Tracking and Documentation  

Whether an employer continues to offer convenience meals or goes in a different direction, keeping track of and documenting all meal expenses is crucial. Meal and entertainment expenses already face close scrutiny by the IRS, and this being the year the law transitions, their resolve can be all the more expected. Therefore, no matter the transaction, receipts and other supporting documentation should be retained.

For business meals that are subject to the 50% limitation, businesses should keep a record of the amount, date, place, business purpose, and name and business relationship of those in attendance.

How meal expenses are tracked should also be reevaluated for 2026 and beyond. Due to the diversity of meal deductibility rates, records for each type should be accounted for separately. Therefore, the varying deductibility rates 100%, 50%, and non-deductible should be factored in to how meals expenses are recorded in the general ledger. A more organized approach will allow for easier financial statement analysis and tax planning in the future.