Are Business Meals Deductible in 2026? A Bookkeeper Explains the New IRS Rules: S7E1

Let’s Talk Lunch… And Reality. This tax season comes with a few surprises. Season 7 kicks off with a friendly but practical walkthrough of one of the most misunderstood areas of bookkeeping: everyday food and drink expenses. Our favorite bookkeeping mensch, Paul Rosenblum, explains what’s changed for 2026, why certain habits no longer work the way they used to, and how a little clarity now can save a lot of confusion later. Paul breaks down what still counts, what doesn’t, and how bookkeepers can guide clients through the shift without panic or awkward end-of-year conversations. Along the way, he reminds us (again) that good bookkeeping isn’t about perfection or software shortcuts. It’s about judgment, context, steady communication throughout the year, and the human element that no software can replace.

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Transcript

Season 7, Episode #1

Happy 2026! Happy tax season to all bookkeepers, EA’s, accountants and CPAs out there. 14 weeks of extra hard work, stress management and trying to get enough sleep. However, if you follow this podcast, my tax season is expected to be somewhat less stressful, less abuse from clients, and more even tempered than ever before since I started doing this.  I have walked away from clients, and a few have walked away from me because I have set up situations that I knew they wouldn’t like. After a tough year personally in 2025, I’d like to think of this upcoming year of one of ‘transition’ personally and continuing to cut down to a reasonable workload.  Welcome to your season.  The season of Q&A. Your Q’s, and hopefully, my A’s. There are always tax changes at the beginning of every year, state and federal. So, let’s start with the federal ones.  I’m Paul Rosenblum. 

The first question is from Jenny. 

Thanks for the question, Jenny!  If I were to go through everything, it would take me 2 hours!  However, I will give a short list, some of which we have spoken about in earlier episodes but will spend the majority of time on the meal category.  

In short, here are the major tax changes for small businesses: 

1. The 20% QBI (Qualified Business Income Deduction) which has been in existence for a while, is now permanent. This is a pass-through entity deduction for sole props, partnerships and S Corporations. 
2. Bonus depreciation & Section 179 is now permanent for qualifying assets purchased. 
3. R&D (Research and Development) costs can now be expensed in the year that they were incurred, rather than an earlier ruling to amortize them over 5 years. 
4. 1099 thresholds have changed from $600 to $2,000 in 2026 (not for 2025). $20,000 or 200 transactions for third party networks such as PayPal and Venmo. 
5. The Employer provided childcare credit expands to 50% deduction in most cases up to $600,000.00.  
6. The tax credit to employers who provide paid family and medical leave (PFML) is now permanent.
7. 401K employer sponsored – limits have gone up starting Jan. 1, 2026, allowing people to save more for the retirement in the future.
8. The “SALT” (State and Local Tax) deduction goes from $10,000.00 in 2025 to $40,000.00 in 2026. 

Taking notes?  (You might want to listen to all of that again over a cup of coffee or better yet, decaf de-stress tea).  There are also state tax changes to look at, although I won’t be discussing those here.  And I won’t be discussing sales taxes either but check to see if sales tax rates in your state or county or city have changed starting in 2026. If you want episodes dealing more with these subjects, put in your requests now. 

Ok, Jenny --   let’s talk about meals. What a complicated major change that started on Jan. 1st. 

Let me first say that for many years, the IRS hasn’t been all that strict with the meal category. Even if a company is audited and they go through the meal category, in my experience, even if the taxpayer doesn’t have receipts (and yes, we, they, you—should!), they will usually disallow a percentage of the meal deduction on the tax return usually based on the pattern of the receipts that the taxpayer does have.  So, keep in mind, if the books are showing $30,000.00 of a meals expense, when the tax preparer enters it into their tax software, it automatically changes to $15,000.00 because meals have been 50% deductible except for a couple of years when Covid first hit the U.S. when meals were 100% deductible. 

 The IRS has not been really strict about the amount of money on the receipt. If a meal that is being deducted was a total of $25.00, in what I have heard from tax preparers who have represented their clients in an audit, those amounts were accepted as a deduction and not questioned. 

However, things have changed with inflation in the last year or two.  There’s really no way of feeding two people for under at least $30, if you look at your delivery receipt or restaurant bill. So, the IRS in the recently passed bill, have made some major changes to meals. 

 Before we speak specifically about the business meals category, I’d make this suggestion. Create a ‘Personal Meals’ category in the clients’ “Draw” account or “2026 Distribution” account. If the client is a sole proprietor, working in the office and ordering food, that meal is no longer deductible. In other words, no more “working meals”. If the owner of a business takes an hour and goes to a restaurant for lunch, that’s not deductible either.

 Here are the 2026 rules and conditions that allow you to deduct meals at a 50% rate: 

1. The expense is ordinary in carrying on the trade or business.
2. The taxpayer or an employee is present at the meal.
3. The meal is not ‘lavish or extravagant’ (wow, is THAT open to interpretation) 
4. The meal is directly related to the active conduct of the business.
5. Includes Business meetings, team lunches, and meals when traveling for business.

If the bookkeeper is putting the books together without physically looking at receipts, then all we have to go on is the total amount spent. So, judgement calls or a very close relationship with the client has to be had. If most meals are in restaurants and the general amount is $60.00 or more, then if I see a fast-food meal for $18.50, I’ll put that in as a personal non-deductible meal. This will cause a problem with several clients because their profit is bound to go up, so as a bookkeeper, I’d go over the profit and loss as often as humanly possible with them so that they are not shocked at the end of the year. Your clients have to keep receipts, because if audited by the IRS, my feeling is that they will be much stricter.  They can look at receipts and see how many main dishes were ordered, what the total price of drinks were and how many deserts were ordered. No one knows quite how strict they will be, but in 3 or 4 years from now when they start auditing the meals category, us business owners and your clients don’t want to be shocked. 

One of my favorite categories -- Refreshments and Snacks – during the worst of Covid were 100% deductible, then changed to 50%, but starting Jan 1, 2026, they are not deductible AT ALL.  So, if a business owner on the way to the office buys coffee, it’s a personal expense. If a company has a break room for employees and has been stocking it with snacks, coffee, and other eatable items, none of that is deductible any longer. So, even as a sole proprietor, if one orders lunch and eats and works at the same time, it’s considered a personal meal. Jenny – and all bookkeepers who are listening to this, I’d send out emails to all of your clients explaining this to them, so that they can come up with a strategy that works for them. 

Another big change in the meals category will be a major situation for one of my clients. There are companies that don’t want employees to take a lunch break. So, the companies, to keep them at their desks, feed them every day. My client who does this spends between $80 and $100 daily feeding the 4 or 5 employees to keep them at their desk, and the employees haven’t minded at all. That benefit as of Jan. 1, 2026, has gone away.  Bye-bye.  Zero deduction to feed employees to stay at their desk. 

One way to handle this is to figure out how much money has been spent per employee lunches to keep them at their desks.  Add that money to their paycheck, (don’t forget to add the extra taxes as well), and then the employee can order their lunch and stay at their desks without it affecting their paychecks. It would be a taxable addition to an employee’s paycheck, but it would act as an instant raise and they would end up breaking even if they bought their own lunch every day.  The company would get the deduction of payroll and payroll taxes off on their income taxes for the company. 

However, there are some meals that still will be 100% deductible.  These are: 

• Meals provided at company-wide events -- holiday parties, summer picnics-- events that would include all employees.
• Meals made available to the general public include food samples, or meals at a charity.
• Meals are sold to customers in restaurants or catering businesses. 

I don’t know, Jenny, if you have any clients that pay for a large meal for a group of potential or current customers, but get reimbursed for that cost later.  

So, because this is a bookkeeping podcast, let’s talk about the bookkeeping procedures of those entries.  If you enter those expenses as Business meals, they would be 50% deductible. Then when the reimbursement came in, the entire amount would be added to income or credited back to the business meals expense.  It would end up costing the taxpayer 50% more because the tax on the reimbursement would be more than the deduction of the meal.  So, the best way of dealing with that situation is to separate the reimbursable expenses into another category, possibly using the cost of goods. Cost of goods is 100% tax deductible.

 You can also use a reimbursable expenses category for the expenses, and then zero it out at the end of the year (or monthly) after all of those expenses are matched to customer invoices.  The client would have to have a line item for each reimbursement so that if audited the IRS could match the reimbursable expense on the invoice to the client’s customer… to an expense in the books.

  In other words, that’s where the ‘relationship’ with the client comes into play as I have been preaching for a few years now. Don’t wait until the end of the year to find out from the client that there were $40K of reimbursable meals that are entered into business meals.

  Does the QuickBooks Online software or Xero or any other software tell you any of this information?  I think not. This is why businesses will need a bookkeeper for many, many years to come. This is the ‘thinking’, human’ part of bookkeeping. Ok, enough preaching. At least for now. 

Entertainment has not been deductible for a long time. But meals at an entertainment event are 50% deductible. There are some exceptions to the rule, one would be if you are a management company in the sports industry, then the tickets to basketball, golf, or baseball games would be deductible.  Country club memberships are not, but the meals before or after the game are @ 50%. 

Did I say that this tax year will be less stressful and easier for me to get through?   Am I going crazy?  Well, I’ll report back on that one. And with all that said, it’s the end of my deep dive on the meal category or shall I say, what’s left of it. 

The other category is Travel. (IRS publication 463). During the worst of Covid, travel expenses, if you had to move for a job, for example, were deductible. Moving expenses are not deductible now except for the US Armed Forces on active duty. There are some states that allow moving costs deductions, however. Those are Arkansas, NJ, NY, California, Hawaii, Mass. And Pennsylvania. 

Bookkeepers – have a good tax season, clients and everyone else -- work with your bookkeeper and tax preparer this year, not against them. It’ll be easier for everyone, including you!  And keep the questions coming! I will continue this season as long as possible to answer your questions.  

It's a new year, a new tax season, new situations to deal with, a couple of new clients to get to know, and I’m still looking for my partridge in a pear tree--- it’s here somewhere!  If you are in NYC, stay healthy, as this is the worst flu season in history in terms of hospitalizations. I already took my deep breath that I won’t totally let out until mid-April. 

I’m Paul Rosenblum