Business Tax Preparation · Business expenses, deductions and credits

Business travel, meals, and gift expenses

Verification 2026 Verified
tax year · reviewed 2026-08-21 · Draft for I. Ohu review

This topic has been rewritten twice by statute in a decade and is about to change again for most employers. Two of the three headings — entertainment and employer-provided meals — now behave in ways that most study material still describes wrongly, and one of those changes takes effect for the first time in the current year.

The rule

Travel. traveling expenses, including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances, while away from home in the pursuit of a trade or business^TY2026 (IRC § 162(a)(2)), and a taxpayer is not treated as being temporarily away from home during any period of employment that exceeds 1 year^TY2026 (IRC § 162(a), closing text).

Entertainment. no deduction is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity — and separately none for membership in any club organised for business, pleasure, recreation or other social purpose^TY2026 (IRC § 274(a)(1), (a)(3)).

Meals. no deduction is allowed for food or beverages unless the expense is not lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer is present at the furnishing^TY2026 (IRC § 274(k)(1)), and then 50 percent — the amount allowable for any expense for food or beverages may not exceed half of what would otherwise be allowable, subject to the exceptions in IRC § 274(n)(2)^TY2026 (IRC § 274(n)(1)).

Meals for the employer’s convenience. no deduction is allowed for the operation of an employer-operated eating facility described in IRC § 132(e)(2), for food or beverages associated with it, or for meals described in IRC § 119(a) — except an expense within IRC § 274(e)(8) or § 274(n)(2)(C)^TY2026 (IRC § 274(o)) — and this is first operative in 2026 — Pub. L. 115-97 § 13304(e)(2) applies the elimination of the deduction for meals provided at the convenience of the employer to amounts incurred or paid after 31 December 2025, and Pub. L. 119-21 § 70305 then carved two exceptions back out with effect from the same date^TY2026.

Gifts. $25 — no deduction is allowed under IRC § 162 or § 212 for gifts to any one individual to the extent the total for that individual during the taxable year exceeds this amount^TY2026 (IRC § 274(b)(1)), which does not reach an item costing the taxpayer not more than $4.00 on which the taxpayer's name is clearly and permanently imprinted and which is one of a number of identical items distributed generally, and a sign, display rack or other promotional material for use on the recipient's business premises^TY2026 (IRC § 274(b)(1)(A), (B)), and where in the case of a gift by a partnership the limit applies to the partnership as well as to each partner, so one gift cannot be multiplied by the number of partners^TY2026 (IRC § 274(b)(2)(A)).

Records. no deduction or credit is allowed for any traveling expense, any gift expense, or any listed property unless the taxpayer substantiates by adequate records or sufficient corroborating evidence the amount, the time and place of the travel or date and description of the gift, the business purpose, and the business relationship of the person receiving the benefit^TY2026 (IRC § 274(d)).

Current figures

Item	Rule	Authority
Travel deduction	traveling expenses, including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances, while away from home in the pursuit of a trade or business^TY2026	IRC § 162(a)(2)
The one-year rule	a taxpayer is not treated as being temporarily away from home during any period of employment that exceeds 1 year^TY2026	IRC § 162(a)
Entertainment and club dues	no deduction is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity — and separately none for membership in any club organised for business, pleasure, recreation or other social purpose^TY2026	IRC § 274(a)(1), (a)(3)
Conditions on food and beverages	no deduction is allowed for food or beverages unless the expense is not lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer is present at the furnishing^TY2026	IRC § 274(k)(1)
The halving	50 percent — the amount allowable for any expense for food or beverages may not exceed half of what would otherwise be allowable, subject to the exceptions in IRC § 274(n)(2)^TY2026	IRC § 274(n)(1)
Employer-convenience meals	no deduction is allowed for the operation of an employer-operated eating facility described in IRC § 132(e)(2), for food or beverages associated with it, or for meals described in IRC § 119(a) — except an expense within IRC § 274(e)(8) or § 274(n)(2)(C)^TY2026	IRC § 274(o)
When that first bites	first operative in 2026 — Pub. L. 115-97 § 13304(e)(2) applies the elimination of the deduction for meals provided at the convenience of the employer to amounts incurred or paid after 31 December 2025, and Pub. L. 119-21 § 70305 then carved two exceptions back out with effect from the same date^TY2026	Pub. L. 115-97 § 13304(e)(2)
Gift limit	$25 — no deduction is allowed under IRC § 162 or § 212 for gifts to any one individual to the extent the total for that individual during the taxable year exceeds this amount^TY2026	IRC § 274(b)(1)
What is not a gift	an item costing the taxpayer not more than $4.00 on which the taxpayer's name is clearly and permanently imprinted and which is one of a number of identical items distributed generally, and a sign, display rack or other promotional material for use on the recipient's business premises^TY2026	IRC § 274(b)(1)(A), (B)
Partnership gifts	in the case of a gift by a partnership the limit applies to the partnership as well as to each partner, so one gift cannot be multiplied by the number of partners^TY2026	IRC § 274(b)(2)(A)
Substantiation	no deduction or credit is allowed for any traveling expense, any gift expense, or any listed property unless the taxpayer substantiates by adequate records or sufficient corroborating evidence the amount, the time and place of the travel or date and description of the gift, the business purpose, and the business relationship of the person receiving the benefit^TY2026	IRC § 274(d)
High-low per diem	$319 a day for travel to a high-cost locality and $225 for any other locality within the continental United States, of which $86 and $74 respectively are treated as paid for meals for purposes of IRC § 274(n)^TY2026	Notice 2025-54 § 5.1
High-cost locality	a locality is high-cost for the specified portion of the calendar year if its federal per diem rate is $272 or more^TY2026	Notice 2025-54 § 5.2
Transportation industry	$80 a day for any locality of travel in the continental United States and $86 outside it — the special meals and incidental expenses rates for taxpayers in the transportation industry^TY2026	Notice 2025-54 § 3
Incidental expenses only	$5 per day for the incidental expenses only deduction, in any locality inside or outside the continental United States^TY2026	Notice 2025-54 § 4

How it works in practice

Travel starts with “away from home.” traveling expenses, including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances, while away from home in the pursuit of a trade or business^TY2026 (IRC § 162(a)(2)). Home for this purpose is the taxpayer’s principal place of business, not their residence, and the trip must require sleep or rest — a long day trip is not travel away from home however far it goes.

And temporary status has a hard edge. a taxpayer is not treated as being temporarily away from home during any period of employment that exceeds 1 year^TY2026 (IRC § 162(a), closing text). A posting expected to last more than a year is indefinite from the start, so no travel deduction is available at all; a posting expected to be short that later extends beyond a year stops being temporary when the expectation changes, not retroactively.

Entertainment is gone, and the exceptions people remember are gone with it. no deduction is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity — and separately none for membership in any club organised for business, pleasure, recreation or other social purpose^TY2026 (IRC § 274(a)(1)). The 2017 Act struck the “directly related to” and “associated with” tests that had preserved a deduction for entertainment connected to a business discussion. Those words are no longer in IRC § 274(a)(1)(A), so there is nothing left to satisfy. Club dues are separately and absolutely denied by IRC § 274(a)(3).

Food bought at an entertainment event survives, if it is separated. The disallowance in IRC § 274(a) is of entertainment; food and beverages are governed by IRC § 274(k) and IRC § 274(n). So the theatre ticket is not deductible and the meal is, at half, provided the food is separately stated or separately purchased rather than bundled into the ticket price.

Meals must clear two conditions before they are halved. no deduction is allowed for food or beverages unless the expense is not lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer is present at the furnishing^TY2026 (IRC § 274(k)(1)) — not lavish or extravagant, and the taxpayer or an employee present. Only then does 50 percent — the amount allowable for any expense for food or beverages may not exceed half of what would otherwise be allowable, subject to the exceptions in IRC § 274(n)(2)^TY2026 (IRC § 274(n)(1)) apply. Take the steps in that order: a lavish meal is not deducted at half, it is not deducted at all.

The employer-convenience meal deduction ends in 2026. no deduction is allowed for the operation of an employer-operated eating facility described in IRC § 132(e)(2), for food or beverages associated with it, or for meals described in IRC § 119(a) — except an expense within IRC § 274(e)(8) or § 274(n)(2)(C)^TY2026 (IRC § 274(o)). Until now an employer operating a staff canteen, or furnishing meals on its premises for its own convenience under IRC § 119, deducted half the cost. From amounts incurred or paid after 31 December 2025 it deducts nothing, subject to two narrow carve-outs added in 2025. The employee’s exclusion under IRC § 119(a) is untouched — this is a change to the employer’s side only, and it is the single most consequential change in this topic for a business that feeds its own staff.

Gifts are capped very low and the cap is per recipient per year. $25 — no deduction is allowed under IRC § 162 or § 212 for gifts to any one individual to the extent the total for that individual during the taxable year exceeds this amount^TY2026 (IRC § 274(b)(1)). The figure has never been indexed. Two things fall outside it: an item costing the taxpayer not more than $4.00 on which the taxpayer's name is clearly and permanently imprinted and which is one of a number of identical items distributed generally, and a sign, display rack or other promotional material for use on the recipient's business premises^TY2026 (IRC § 274(b)(1)(A), (B)). And in the case of a gift by a partnership the limit applies to the partnership as well as to each partner, so one gift cannot be multiplied by the number of partners^TY2026 (IRC § 274(b)(2)(A)), which stops a four-partner firm claiming four times the limit on one gift.

Records are a condition of the deduction, not evidence of it. no deduction or credit is allowed for any traveling expense, any gift expense, or any listed property unless the taxpayer substantiates by adequate records or sufficient corroborating evidence the amount, the time and place of the travel or date and description of the gift, the business purpose, and the business relationship of the person receiving the benefit^TY2026 (IRC § 274(d)). Four elements are required for travel and for gifts, and the provision says “no deduction or credit shall be allowed” without them — so an otherwise genuine expense with no records is disallowed, and the usual latitude a court might extend to an unproven deduction is unavailable.

Per diem substitutes for the amount, never for the rest. Rev. Proc. 2019-48 lets a taxpayer substantiate the amount of lodging, meal and incidental expenses by a federal per diem rate rather than by receipts; time, place and business purpose still have to be proved. Under the high-low method the rates are $319 a day for travel to a high-cost locality and $225 for any other locality within the continental United States, of which $86 and $74 respectively are treated as paid for meals for purposes of IRC § 274(n)^TY2026 (Notice 2025-54 § 5.1), and a locality is high-cost for the specified portion of the calendar year if its federal per diem rate is $272 or more^TY2026. Two special rates sit alongside them — $80 a day for any locality of travel in the continental United States and $86 outside it — the special meals and incidental expenses rates for taxpayers in the transportation industry^TY2026 (Notice 2025-54 § 3) and $5 per day for the incidental expenses only deduction, in any locality inside or outside the continental United States^TY2026 (Notice 2025-54 § 4). Note that the notice runs on a federal fiscal year rather than a calendar year, so the rates in force change on 1 October.

The theatre evening, itemised

A consultant takes two clients to the theatre. The tickets cost $100 each, and during the interval she buys food for the party, separately billed, at $90 in total. She attends throughout.

The tickets are entertainment. no deduction is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity — and separately none for membership in any club organised for business, pleasure, recreation or other social purpose^TY2026 (IRC § 274(a)(1)) disallows them outright, and no amount of business discussion during the evening revives them, because the “directly related to” and “associated with” tests were struck from the statute in 2017.

The food is not entertainment; it is food and beverages, governed by IRC § 274(k) and IRC § 274(n). It is not lavish and she was present, so no deduction is allowed for food or beverages unless the expense is not lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer is present at the furnishing^TY2026 is satisfied, and 50 percent — the amount allowable for any expense for food or beverages may not exceed half of what would otherwise be allowable, subject to the exceptions in IRC § 274(n)(2)^TY2026 allows half — $45.

Her total deduction is $45 out of $390 spent.

Change one fact: buy the food as part of a package with the tickets, not separately stated. It is then an inseparable part of the entertainment cost, and the deduction is nil.

The canteen that stopped paying for itself

Wolterton Instruments runs a subsidised staff canteen on its factory site. Meals are furnished for the convenience of the employer and are excluded from employees’ income under IRC § 119(a). The canteen costs $340,000 a year to operate.

For 2025 the company deducted half of that under the pre-2026 version of the rule — $170,000.

For 2026, no deduction is allowed for the operation of an employer-operated eating facility described in IRC § 132(e)(2), for food or beverages associated with it, or for meals described in IRC § 119(a) — except an expense within IRC § 274(e)(8) or § 274(n)(2)(C)^TY2026 (IRC § 274(o)) allows nothing, because first operative in 2026 — Pub. L. 115-97 § 13304(e)(2) applies the elimination of the deduction for meals provided at the convenience of the employer to amounts incurred or paid after 31 December 2025, and Pub. L. 119-21 § 70305 then carved two exceptions back out with effect from the same date^TY2026. The deduction falls from $170,000 to zero on identical facts, and nothing about the canteen, the employees or the exclusion has changed.

Two carve-outs added by Pub. L. 119-21 § 70305 keep the door open for particular employers — the provision now reads “Except in the case of an expense described in subsection (e)(8) or (n)(2)(C)” — but neither reaches an ordinary factory canteen.

The planning consequence is stark and immediate: the same expenditure that was half deductible in December 2025 is wholly non-deductible in January 2026.

Gifts to one customer, four ways

A firm wants to thank a good customer. It considers four options, each costing about $100 per recipient.

A hamper worth $100. $25 — no deduction is allowed under IRC § 162 or § 212 for gifts to any one individual to the extent the total for that individual during the taxable year exceeds this amount^TY2026 (IRC § 274(b)(1)) allows $25. The other $75 is lost, and if the firm has already given the same individual a $30 bottle earlier in the year, the limit is exhausted and the hamper gives nothing.

Twenty-five branded pens at $4 each. an item costing the taxpayer not more than $4.00 on which the taxpayer's name is clearly and permanently imprinted and which is one of a number of identical items distributed generally, and a sign, display rack or other promotional material for use on the recipient's business premises^TY2026 (IRC § 274(b)(1)(A)) — an item costing not more than $4.00, permanently imprinted with the firm’s name, and one of many identical items distributed generally, is not a gift for this purpose. All $100 is deductible.

A display rack for the customer’s shop floor. IRC § 274(b)(1)(B) — promotional material for use on the recipient’s business premises is outside the limit entirely.

Dinner with the customer. Not a gift at all; food and beverages, so IRC § 274(k) and IRC § 274(n) govern and half is deductible, provided someone from the firm attends.

Four routes to the same gesture, and the deduction ranges from $25 to the full amount.

Traps.

Entertainment has no business-purpose exception any more. {fig:travel.entertainment_gone} (IRC § 274(a)(1)). The "directly related" and "associated with" tests were struck in 2017 and are not in the current text.

Apply IRC § 274(k) before IRC § 274(n). {fig:travel.meal_conditions}. A meal that is lavish, or at which nobody from the business was present, is disallowed entirely rather than halved.

The gift limit is per recipient per year, and it aggregates. {fig:travel.gift_limit} (IRC § 274(b)(1)) — the deduction is denied to the extent the total for that individual "during the same taxable year" exceeds the figure.

A partnership and its partners share one limit. {fig:travel.gift_partnership} (IRC § 274(b)(2)(A)).

Substantiation is a condition, not a matter of proof. {fig:travel.substantiation} (IRC § 274(d)). Four elements, and without them no deduction is allowed at all.

Employer-provided meals are not half deductible in 2026. {fig:travel.employer_meals_2026} (IRC § 274(o)). Any source applying the ordinary meal haircut to a staff canteen is describing years up to 2025.

How this has changed

The change that matters this year is IRC § 274(o), and it was legislated in 2017 with an eight-year fuse. first operative in 2026 — Pub. L. 115-97 § 13304(e)(2) applies the elimination of the deduction for meals provided at the convenience of the employer to amounts incurred or paid after 31 December 2025, and Pub. L. 119-21 § 70305 then carved two exceptions back out with effect from the same date^TY2026. Pub. L. 115-97 § 13304(d) added IRC § 274(o), and § 13304(e)(2) provided separately that “the amendments made by subsection (d) shall apply to amounts incurred or paid after December 31, 2025.” Every other part of the 2017 rewrite of IRC § 274 took effect for amounts incurred or paid after 31 December 2017; this one alone waited. A practitioner who learned IRC § 274 in 2018 and has not revisited it will have the right answer for eight years and the wrong one for 2026.

Pub. L. 119-21 § 70305 then narrowed it slightly, with effect for amounts paid or incurred after the same date: § 70305(a) inserted “Except in the case of an expense described in subsection (e)(8) or (n)(2)(C)” into the opening words of IRC § 274(o), and § 70305(b) added a new IRC § 274(n)(2)(C)(v). So the provision arrives in 2026 already amended, and a source that quotes IRC § 274(o) without the opening exception is quoting the 2017 text.

Entertainment went in 2017 and has not come back. Pub. L. 115-97 § 13304(a)(1)(A) struck from IRC § 274(a)(1)(A) the words that had allowed a deduction where the item was “directly related to” or “associated with” the active conduct of the taxpayer’s trade or business. The disallowance is now unconditional. This is the point most often stated wrongly, because the pre-2018 rule was taught for thirty years.

The temporary full deduction for restaurant meals has expired. Pub. L. 116-260 § 210(a) added IRC § 274(n)(2)(D), lifting the haircut for food or beverages provided by a restaurant, and § 210(b) applied it to amounts paid or incurred after 31 December 2020 — and, by its own terms, before 1 January 2023. Material giving a full deduction for business restaurant meals is describing 2021 and 2022 only.

Exam focus

Sort the expense before applying any percentage. Entertainment is disallowed, food and beverages are halved, gifts are capped, and travel is deductible in full. Most wrong answers apply the wrong regime’s rule.

On meals, run IRC § 274(k) first and IRC § 274(n) second, and remember that both of the IRC § 274(k) conditions are absolute.

Know the gift figure, know that it has never been indexed, and know the two things that are not gifts — the small permanently imprinted item and promotional material for the recipient’s premises.

For 2026 specifically, expect a question on employer-provided meals. The answer changed on 1 January 2026 and the change was enacted in 2017, so both the old and the new rule are in circulation.

Check yourself

1. A business buys a $250 skybox seat for a client and, separately billed, a $60 meal during the game. An employee attends. What is deductible?

Answer: $30. The skybox seat is entertainment and no deduction is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement or recreation, or with respect to a facility used in connection with such an activity — and separately none for membership in any club organised for business, pleasure, recreation or other social purpose^TY2026 (IRC § 274(a)(1)) disallows it entirely. The separately billed food clears no deduction is allowed for food or beverages unless the expense is not lavish or extravagant under the circumstances and the taxpayer or an employee of the taxpayer is present at the furnishing^TY2026 and is halved by 50 percent — the amount allowable for any expense for food or beverages may not exceed half of what would otherwise be allowable, subject to the exceptions in IRC § 274(n)(2)^TY2026.

2. A firm gives a customer a $40 gift in March and a $30 gift in November. What may it deduct?

Answer: $25 in total. $25 — no deduction is allowed under IRC § 162 or § 212 for gifts to any one individual to the extent the total for that individual during the taxable year exceeds this amount^TY2026 (IRC § 274(b)(1)) denies the deduction to the extent the aggregate for that individual during the taxable year exceeds the limit, so the March gift uses it all and the November gift adds nothing.

3. An employer spends $500,000 in 2026 operating an on-site cafeteria whose meals are excluded from employees’ income under IRC § 119(a). What may it deduct?

Answer: Nothing. no deduction is allowed for the operation of an employer-operated eating facility described in IRC § 132(e)(2), for food or beverages associated with it, or for meals described in IRC § 119(a) — except an expense within IRC § 274(e)(8) or § 274(n)(2)(C)^TY2026 (IRC § 274(o)), and first operative in 2026 — Pub. L. 115-97 § 13304(e)(2) applies the elimination of the deduction for meals provided at the convenience of the employer to amounts incurred or paid after 31 December 2025, and Pub. L. 119-21 § 70305 then carved two exceptions back out with effect from the same date^TY2026 — the provision applies to amounts incurred or paid after 31 December 2025. The employees’ exclusion under IRC § 119(a) is unaffected.

4. An engineer accepts a posting expected to last eighteen months and returns after ten. May she deduct her living costs while there?

Answer: No. a taxpayer is not treated as being temporarily away from home during any period of employment that exceeds 1 year^TY2026 (IRC § 162(a)) — the test is the expected duration at the outset, and an assignment expected to exceed one year is indefinite rather than temporary from the start. The fact that it ended early does not make the earlier expectation reasonable.

5. A sole proprietor has genuine records of the amount and date of a business trip but none of its business purpose. Is the travel deductible?

Answer: No. no deduction or credit is allowed for any traveling expense, any gift expense, or any listed property unless the taxpayer substantiates by adequate records or sufficient corroborating evidence the amount, the time and place of the travel or date and description of the gift, the business purpose, and the business relationship of the person receiving the benefit^TY2026 (IRC § 274(d)) requires four elements — amount, time and place, business purpose, and business relationship — and provides that no deduction shall be allowed without them. Substantiation is a condition of the deduction rather than a matter of proof.

Change log

2026-08-21Initial draft. Sets out the IRC § 162(a)(2) travel deduction with the one-year rule that ends temporary status, the IRC § 274(a) disallowance of entertainment and club dues, the two IRC § 274(k) conditions on food and beverages and the IRC § 274(n) halving that follows, the IRC § 274(b) gift limit with its two exclusions and the partnership rule, and the IRC § 274(d) substantiation requirement. Records that IRC § 274(o) first bites in 2026: Pub. L. 115-97 § 13304(e)(2) applied it to amounts incurred or paid after 31 December 2025.
2026-08-21Adds the per diem substantiation rates from Notice 2025-54, opened at source today — the high-low rates and the meal portions of each, the federal per diem figure at which a locality becomes high-cost, the special transportation industry rates, and the incidental-expenses-only rate. Records that per diem substitutes for the amount only, leaving time, place and business purpose to be proved, and that the rates change on 1 October rather than 1 January.