Business Meals and Entertainment: What the IRS Allows in Publication 463 (2025)

Chapter 2 of IRS Publication 463 (2025), Travel, Gift, and Car Expenses, covers meals and entertainment. The short version: you can no longer take a deduction for any expense related to activities generally considered entertainment, amusement, or recreation. You can still claim 50% of the cost of business meals, as long as certain conditions are met.

The basic rule for business meals

The IRS says you can continue to claim 50% of the cost of business meals if these conditions are met:

You (or your employee) are present.
The food or beverages are not lavish or extravagant.
The expense is ordinary and necessary.

The meal can be provided to a current or potential business customer, client, consultant, or similar business contact.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business, and it does not have to be required. An expense is not lavish or extravagant if it is reasonable based on the facts and circumstances.

What counts as entertainment

Entertainment is any activity generally considered to provide entertainment, amusement, or recreation. The publication lists entertaining guests at nightclubs, at social, athletic, and sporting clubs, at theaters, at sporting events, on yachts, or on hunting, fishing, vacation, and similar trips. It may also include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.

Your kind of business can matter. A dress designer's fashion show for store buyers is generally not entertainment, because fashion shows are typical in that business. The same show held by an appliance distributor for retailers' spouses is generally entertainment.

If one bill combines entertainment with other services such as lodging or transportation, you must split the cost between them on a reasonable basis. The IRS example is a hotel that puts lounge entertainment on the same bill as your room.

What cannot be claimed

Entertainment events. Generally, no expense for an entertainment event can be claimed.
Entertainment facilities. This covers depreciation and operating costs such as rent, utilities, maintenance, and protection for property used for entertainment, such as a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or vacation home.
Club dues and initiation fees for clubs organized for business, pleasure, recreation, or other social purposes. The club's purposes and activities decide this, not its name. Country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals in settings generally considered conducive to business discussions are all named.
Gifts that could also be entertainment. These are generally treated as entertainment. The exception: packaged food or beverages you give a customer to use at a later date are treated as a gift.

Exceptions to the entertainment rule

Entertainment treated as compensation on your originally filed returns (and as wages to your employees).
Recreational expenses for employees, such as a holiday party or summer picnic.
Business meetings or conventions of certain exempt organizations, such as business leagues, chambers of commerce, and professional associations.
Entertainment sold to customers, such as a floor show at a nightclub you run.

Food at an entertainment event

Food and beverages at an entertainment event are not treated as entertainment if they were bought separately or if their cost is stated separately on a bill, invoice, or receipt. The IRS warns that the entertainment rule cannot be avoided by inflating the amount charged for food and beverages.

The publication's examples show how this works:

Baseball game: the tickets are entertainment and cannot be claimed. Hot dogs and drinks bought separately at the game qualify for the 50% treatment.
Suite at a basketball game, with food included in the ticket price and not stated separately: nothing can be claimed.
Same suite, but the invoice states the food and beverage cost separately: 50% of that separately stated cost can be claimed. The rest of the ticket cannot.

How the 50% limit works

Taxes and tips on a business meal are part of the meal's cost and are subject to the 50% limit. Transportation to and from the meal is not part of the cost and is not subject to the limit.

The limit applies to employees or their employers, and to self-employed people (including independent contractors) or their clients, depending on whether the expenses are reimbursed. Examples include meals while traveling away from home on business and meals at a business convention or business league meeting. It also applies to certain meal expenses that are not business related, such as meals for the production of income (including rental or royalty income) and meals included in educational expenses. People subject to the Department of Transportation's hours of service limits can claim 80% of business-related meal expenses.

The publication includes Figure A, a flowchart on reimbursements, to help decide whether the 50% limit applies.

What to tell clients

Ask for itemized receipts. When food is part of an entertainment event, a separately stated food cost is what makes the 50% treatment possible.
Do not inflate the food line to get around the entertainment rule.
Remember that the owner or an employee must be present at the meal, and that the cost must be reasonable.
Review club dues, facility costs, and tickets separately from meals.

This article summarizes part of Chapter 2 of IRS Publication 463 (2025). Check the full publication for the exceptions to the 50% limit and for the record-keeping rules in Chapter 6.

Informational only, based on the IRS source linked above; not tax or legal advice for a specific situation.