Business Gifts and Entertainment: What You Can and Cannot Deduct After Tax Reform

By Yarik Yarosh, CPA ·September 5, 2026 ·6 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

The rules for deducting business gifts and entertainment changed significantly with the Tax Cuts and Jobs Act in 2017 and have remained a source of confusion ever since. The simplest summary: entertainment is non-deductible (0%), business meals are 50% deductible, gifts are deductible up to $25 per person per year, and company-wide employee events are 100% deductible. Under IRC 274(a)(1), no deduction is allowed for entertainment, amusement, or recreation expenses, regardless of how directly they relate to the business. This means taking a client to a baseball game, a golf outing, or a concert produces zero deduction, even if business is discussed during the event. Business meals under IRC 274(k) remain 50% deductible when the taxpayer or an employee is present and the meal isn’t lavish or extravagant. The temporary 100% deduction for restaurant meals (2021-2022) expired on December 31, 2022, and meals are back to 50%.

✓Key takeaway

Business gift, meal, and entertainment deduction rules (current law):

Category	Deductible?	Limit	Authority
Business gifts	Yes	$25 per recipient per year	IRC 274(b)
Business meals (with business purpose)	Yes	50% of cost	IRC 274(k)
Entertainment (sporting events, golf, concerts)	No	0% (completely non-deductible)	IRC 274(a)(1)
Employee recreational events (holiday party, picnic)	Yes	100%	IRC 132(e)
Meals during entertainment (separately stated)	Yes	50% (if on a separate check/receipt)	Treas. Reg. 1.274-11
De minimis meals (coffee, snacks, occasional meals)	Yes	50%	IRC 274(n)
Meals for the convenience of the employer (on-premises)	Yes	50% (was 100% pre-2018, then 50% through 2025)	IRC 274(n)(2)
Gift cards to clients	Yes	$25 per recipient limit	IRC 274(b)
Gift cards to employees	No (not a gift)	Taxable W-2 compensation	IRC 102(c)

$25 gift limit exclusions (not counted toward the $25):

Excluded from $25 Limit	Included in $25 Limit
Items costing $4 or less with the company name (pens, calendars, mugs)	Any gift over $4 without company name
Engraving, gift wrapping, packaging	The gift item itself
Shipping and delivery costs	The gift item itself
Signs, display racks, or promotional materials	Gifts of merchandise or gift cards

What’s deductible when you take a client out?

Hypothetical example

Round numbers. A business owner takes a client to dinner and then to a basketball game. The evening includes:

Expense	Amount	Deductible?	Deduction
Dinner at a restaurant (separate check, before the game)	$200	Yes (50%)	$100
Two basketball tickets	$400	No (entertainment)	$0
Parking at the arena	$30	No (entertainment-related)	$0
Drinks at the game (purchased at the arena concession)	$50	No (not separately stated from entertainment)	$0
Total spent	$680		$100

The dinner is 50% deductible because it was separately stated (on a restaurant receipt, not bundled with the entertainment). The basketball tickets, parking, and drinks at the game are all entertainment and completely non-deductible.

What if the dinner was at the arena suite with the tickets?

Expense	Amount	Deductible?
Suite rental (includes food and beverages, not separately stated)	$2,000	$0 (all entertainment, food not separated)

If food and beverages in the suite are separately stated on the invoice:

Expense	Amount	Deductible?
Suite rental (entertainment portion)	$1,400	$0
Food and beverages in suite (separately stated)	$600	$300 (50%)

The key: food and beverages must be separately stated on the bill/invoice to be deductible. If bundled with entertainment, the entire amount is non-deductible.

Business gift tracking:

Recipient	Gift	Cost	Deductible
Client A	Holiday gift basket	$75	$25 (limited)
Client B	Bottle of wine	$40	$25 (limited)
Client C	Company-branded pen set ($3 cost)	$3	$3 (under $4 with company name, excluded from $25 limit)
Client D	Gift card	$25	$25 (at the limit)
Client E	Gift card	$50	$25 (limited)
Employee A	Holiday gift card	$100	$0 as gift; $100 as W-2 compensation (fully deductible as wages)
Total gift cost		$293	$103 (as gifts) + $100 (as wages)

Gift cards to employees are NEVER gifts under the tax code. IRC 102(c) provides that transfers from an employer to an employee aren’t excluded as gifts. Gift cards are cash equivalents and must be included in the employee’s W-2 wages, subject to income tax and FICA.

Employee events (100% deductible):

Event	Cost	Deductible
Annual holiday party (all employees invited)	$5,000	$5,000 (100%)
Company summer picnic	$3,000	$3,000 (100%)
Team building event (bowling, escape room)	$1,500	$1,500 (100%)
Departmental dinner (all department members)	$800	$400 (50%, regular business meal, not a company-wide recreational event)

Company-wide recreational events for all employees are 100% deductible under IRC 132(e) (de minimis fringe benefit). A dinner for a subset of employees is a business meal (50%).

Documentation requirements (IRC 274(d)):

Element	Required for Every Business Meal and Gift
Amount	Dollar amount of the expense
Date	When the expense occurred
Place	Name and location of the restaurant or venue
Business purpose	Why the meal or gift was for business
Business relationship	Who attended (names and titles/business relationship)
For gifts: recipient name	The specific individual who received the gift

Without this documentation, the deduction is disallowed entirely. The Cohan rule (estimating deductions) does NOT apply to meals, entertainment, gifts, or travel under IRC 274(d).

Common mistakes:

Mistake	Correct Treatment
Deducting golf as a business expense	0% (entertainment, non-deductible)
Deducting Super Bowl tickets	0% (entertainment)
Treating employee gift cards as de minimis	Gift cards are always taxable compensation
Not separating food from entertainment	Food bundled with entertainment = 0% deduction
Exceeding $25 gift limit without tracking	Only $25 per person is deductible; must track per recipient
Deducting lavish meals	”Lavish or extravagant” meals are not deductible (subjective, but extreme cases are challenged)

Illustrative numbers only, not a real client and not advice for your facts.

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Cite this page

Yarik Yarosh, CPA. "Business Gifts and Entertainment: What You Can and Cannot Deduct After Tax Reform." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-tax-implications-business-gifts-entertainment

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.

Business Gifts and Entertainment: What You Can and Cannot Deduct After Tax Reform

What’s deductible when you take a client out?

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