Business Meals Deduction: The 50% Rule, What Counts as Entertainment, and the Holiday Party Exception
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How we wrote this: A plain-English summary of IRS Publication 463, Travel, Gift, and Car Expenses (the edition for preparing 2025 returns), checked October 29, 2026. This is general information, not tax advice. Rules can change, so check the current publication or ask a tax professional about your situation.
Lunch with a client, coffee with a supplier, pizza for the team: small businesses spend a lot on food, and the tax rules for it are stricter than many owners expect. Here is how the IRS explains them.
The basic rule: 50% of business meals
Publication 463 says you can deduct 50% of the cost of business meals if:
- you (or an employee) are present, and
- the food or drinks aren't lavish or extravagant.
The meal can be with a current or potential customer, client, consultant or similar business contact. As with any business expense, it must also be ordinary and necessary: common and accepted in your line of work, and helpful and appropriate for the business.
"Lavish" doesn't mean expensive. The IRS says a meal isn't disallowed just because it costs more than a fixed amount or happens at a deluxe restaurant; the test is whether it's reasonable given the facts.
What counts in the cost: taxes and tips on the meal are part of it and subject to the 50% limit. Getting to and from the meal isn't part of the meal cost, so the 50% limit doesn't apply to that transportation.
Entertainment is not deductible
The IRS is blunt: you can no longer deduct expenses for activities generally considered entertainment, amusement or recreation. That includes tickets to sporting events, theaters and nightclubs, and trips such as hunting or fishing outings. Club dues are generally out too, including country clubs, golf and athletic clubs, airline clubs and hotel clubs.
Food at an entertainment event
There is one useful wrinkle. If you buy food and drinks separately from the entertainment, or the bill states their cost separately, that food can be treated as a meal (50% deductible) even though the event itself isn't deductible.
Publication 463's examples make it concrete:
| Situation | Result |
|---|---|
| Baseball tickets for you and a client; hot dogs and drinks bought separately at the game | Tickets: not deductible. Food: 50% deductible |
| Suite tickets where food is included and not itemized | All of it is entertainment: not deductible |
| Same suite, but the invoice states the food cost separately | Tickets: not deductible. Itemized food: 50% deductible |
The IRS adds that you can't get around the rule by inflating the food charge.
Exceptions to the 50% limit
Publication 463 lists cases where the 50% limit doesn't apply. The ones most relevant to small businesses:
- Recreational expenses for employees, such as a holiday party or a summer picnic. (A party for your staff is treated differently from taking clients out.)
- Meals treated as compensation, reported as wages to the employee.
- Meals provided to the general public as advertising or to promote goodwill in the community.
- Selling meals. A restaurant's cost of the food it serves customers isn't subject to the limit.
- Self-employed people reimbursed by a client. If you're an independent contractor, a client reimburses your meal costs, and you give the client adequate records, the limit doesn't apply to you; the client is subject to it instead.
Workers under the Department of Transportation's "hours of service" limits (such as certain truck drivers and pilots) can deduct 80% of meals while traveling away from home.
Gifts follow different rules; see the business gift rules. Publication 463 also notes that packaged food or drinks you give a customer to use later are treated as a gift.
Keep the right records
Publication 463's recordkeeping table lists the elements you need to prove business expenses: the amount, time, place, business purpose and, for meals with others, the business relationship of the people involved. Write it down at the time: a note on the receipt or in your bookkeeping app ("lunch with Pat, new supplier, discussed Q1 order") does the job.
On receipts, the publication says documentary evidence generally isn't required for an expense (other than lodging) under $75, but you still need the record of the details. A receipt that shows the amount, date, place and nature of the expense is ordinarily adequate. See how long to keep business records.
Quick checklist
- Was it a meal (not entertainment), with you or an employee present?
- Was it reasonable, and with a business contact for a business reason?
- At an event, was the food bought or billed separately?
- Does an exception apply (employee party, public promotion, compensation)?
- Did you record who, why, where, when and how much?