Can You Deduct Entertainment Expenses? + FAQs

No, entertainment expenses are not generally deductible under U.S. tax law after 2018.

This was a game-changing shift under the Tax Cuts and Jobs Act (TCJA) that left many business owners surprised.

In fact, U.S. companies historically spent hundreds of millions of dollars annually entertaining clients and prospects, and for years they could partially deduct those costs on their taxes. Now, post-2018, 0% of those entertainment costs can be deducted in most cases. What does this mean for your business? Read on to understand the new rules, the exceptions, and how to handle related expenses in 2025 and beyond.

In this comprehensive guide, you’ll learn:

💡 What counts as “entertainment” in the IRS’s eyes – you may be surprised what activities qualify (and which expenses don’t fall under this category)
📜 Why the 2018 tax law killed entertainment write-offs – uncover the story behind IRC Section 274 and the TCJA’s crackdown (after decades of allowing 50% deductions)
🍔 How to still deduct business meals and other costs during client events legally – including the key 50% limit and the latest rules post-2022
🎉 Exceptions & loopholes that still offer tax breaks – from 100% deductible office parties and team-building events to creative reclassification and state-level twists that might let you deduct more
⚠️ Common mistakes to avoid – steer clear of IRS red flags like misclassifying expenses (plus a quick FAQ on club dues, gifts, state differences, and more)

Let’s dive in and demystify entertainment expense deductions, so you can stay compliant and maximize any tax benefits still on the table.

What Exactly Are Entertainment Expenses? (Definition & Examples)

First things first – what does the IRS actually consider an “entertainment” expense? The definition is broader than you might think. Entertainment expenses refer to any business costs for activities generally considered entertaining, amusement, or recreation. In plainer terms, this means things like:

Taking clients or prospects to sporting events (e.g. football games, basketball playoffs, golf tournaments)
Hosting or attending concerts, shows, or theater performances with business associates
Treating clients to golf outings, hunting or fishing trips, resort vacations, or similar leisure activities
Nightclub outings, casino visits, or fine dining with lavish entertainment, intended to woo customers
Even maintaining facilities for entertainment (like a yacht, hunting lodge, or private suite at an arena) counts as entertainment

The IRS uses an objective test: if an activity is generally considered fun or recreational (to a reasonable person), it’s treated as entertainment even if you discuss business during the event. In other words, taking a client to a basketball game and talking shop during halftime still counts as entertainment – it’s the nature of the activity that matters, not just your intent.

Key Point: Entertainment = fun activities. If you or your guests are enjoying an amusement or social event, the IRS likely labels it as entertainment, regardless of any business purpose.

Club memberships are also a big trap here. Membership dues or fees for any social, athletic, country club, golf club, or sporting club are considered entertainment-related. Even if you join a club primarily to network for business, the tax code specifically disallows deducting those dues. The same goes for any club organized for business, pleasure, recreation, or social purposes – so no write-off for that golf club membership or private dining club fee.

Let’s clarify with a quick comparison of scenarios:

Entertainment Expense Scenario	Deductible in 2025?
Taking a client to a sports event (tickets to a ballgame, concert, etc.)	No deduction (0%). Entertainment costs for clients are completely nondeductible post-2018.
Taking a client out for a business dinner (separate from other entertainment)	Partially – 50% of the meal cost is deductible as a business meal (if properly documented).
Hosting a company-wide holiday party or employee picnic	Yes – 100% deductible. Employee social events for the whole team are an exception (not treated as client entertainment).

As you can see, classic client entertainment like sports tickets or theater outings can no longer be written off.

On the other hand, a pure business meal with a client is not considered entertainment – it’s categorized as a meal (which we’ll cover below) and still gets a partial deduction (50%).

And if you’re throwing an event purely for employees (e.g. an annual holiday party open to all staff), that falls under a different category (employee recreation) and remains fully deductible. The key is distinguishing true “entertainment” from other types of expenses.

“Directly Related” No More: Old Rules vs New Reality

Prior to 2018, businesses could deduct 50% of qualifying entertainment expenses, as long as the expense was directly related to or associated with the active conduct of business. For example, if you took a client to a baseball game and had a bona fide business discussion either during the game (directly related) or immediately before/after (associated with business), you could write off half the cost of the tickets. There were strings attached – you had to document who attended, when, where, and what business was discussed – but at least a partial deduction was allowed.

Those “good old days” are gone. The Tax Cuts and Jobs Act of 2017 (TCJA) wiped out the entertainment expense deduction starting in 2018. Congress essentially said: No more tax write-offs for client entertainment, period.

Their logic was twofold: cut back on perceived abuse of lavish expense accounts, and raise revenue to offset other tax cuts. By eliminating entertainment deductions, lawmakers projected saving billions in tax revenue over the following decade. Companies that routinely wrote off golf outings or concert tickets for clients suddenly lost that subsidy – making them think twice about those expenditures.

Under IRC Section 274(a) (as revised by TCJA), no deduction is allowed for any expense related to entertainment, amusement or recreation. This is a hard-line rule.

It doesn’t matter if the expense would normally be an “ordinary and necessary” business cost under Section 162; Section 274 explicitly disallows it if it’s entertainment. No more 50% limit – it’s a 0% deduction now for entertainment. That applies to concert tickets, sports events, theater outings, golf fees, club dues, and similar fun stuff when used to entertain clients or prospects.

Notably, Congress did not change the rules for business meals when they axed entertainment deductions. Meals had long been lumped together with entertainment (the old “M&E” category), but TCJA split them apart. Lawmakers chose to keep business meals deductible (at 50%) even while shutting down entertainment write-offs.

This caused confusion at first – people wondered if meals during entertainment events were also barred. The IRS later clarified that you can still deduct meals in a business context, even if they take place during an entertainment event, as long as the food and drink costs are separately stated from the entertainment and meet the normal business meal criteria.

In summary, since 2018 the landscape has completely changed:

Then (Pre-2018): 50% deductible entertainment if directly related to business (with strict substantiation).
Now (2018 and after): Entertainment is generally not deductible at all (0%), no matter how business-related, except for a few narrow exceptions (covered later). Meals remain 50% deductible in most cases, but you must separate them from entertainment activities.

Why Entertainment Expenses Aren’t Deductible Anymore (And the Few Exceptions)

You might be wondering why the tax code turned so strict on entertainment. Put simply, it was part of a tax reform effort. The TCJA aimed to simplify deductions and offset tax cuts, and lavish client entertainment was viewed as an often-abused perk. Cutting the deduction discourages excessive wining-and-dining on the taxpayer’s dime and helps raise revenue.

However, not every situation got the axe. There are specific exceptions in the tax code (Section 274(e)) that survived the TCJA. These exceptions outline cases where an entertainment-related expense can still be deductible. Let’s break down the main exceptions and special cases:

1. Employee Entertainment (Recreational Expenses for Employees)

If an entertainment or social event is primarily for the benefit of employees, it can be deductible. A classic example is the annual holiday party or summer picnic for all staff. The IRS allows 100% deduction of costs for recreational, social, or team-building events for employees (as long as it’s not just for highly compensated execs, but open to all ranks). Throwing a year-end party, a team bowling night, or a company retreat is still a tax-friendly move – those are not considered client entertainment but rather employee morale expenses.

Important: This exception doesn’t cover taking only a few executives or clients out for fun under the guise of an “employee” event. It truly has to benefit a broad group of employees. Also note, if you invite clients to your employee party, that portion of cost could become entertainment – but generally a modest guest policy is fine.

2. Expenses Treated as Compensation to Recipients

Another way an entertainment expense might be deductible is if you include its value in the income of the recipient. For instance, suppose you reward a top-performing employee with an all-expenses-paid trip (normally an entertainment expense). If you include the value of that trip in the employee’s W-2 as taxable wages (or issue a 1099 to a non-employee for it), then the cost becomes a deductible compensation expense for you.

It’s rarely practical for client entertainment (you won’t put a client on payroll just to deduct their golf outing), but it’s a noteworthy exception for certain cases. A more common scenario is employee perks – e.g. you send an employee and their family to Disney World as a prize and report it as taxable income to them, then the company can deduct the cost as wages.

3. Entertainment Made Available to the Public

If your business sponsors an entertainment event that is open to the general public, it may not fall under the entertainment disallowance. For example, say you sponsor a free community concert or host a customer appreciation fair open to everyone. Those costs are essentially advertising or public promotion rather than private entertainment, and could be deductible. The key is the event isn’t a selective client-schmoozing scenario – it’s open to the public.

4. Business Meetings of Employees, Stockholders, or Directors

Some entertainment-like expenses can slip through if they occur in the context of certain meetings. For instance, entertainment at a bona fide business meeting of your company’s employees or a meeting of your board of directors might be allowable. Similarly, attending business league or trade association meetings that include some entertainment (say a reception at a conference) could be deductible if the fun is incidental to the event’s business purpose.

In essence, when entertainment is incidental to a bona fide business meeting or convention (and not the main reason people are there), it might be permissible. This is a narrow exception, and usually those costs would be considered part of meeting expenses.

5. Entertainment as Part of Selling/Service (Entertainment Business)

If you’re actually in the business of providing entertainment to customers for a fee, your costs are just business expenses. For example, a theater owner’s cost to put on a show, or a tour company’s cost for guided excursions, are not disallowed – that’s just the cost of doing business, not client schmoozing. Similarly, if you run a restaurant that provides live music, the band’s fee is an entertainment cost for you but it’s integral to your product and not subject to disallowance.

There’s also a provision that if you provide entertainment to a customer and sell it to them at fair market value, that expense isn’t subject to the entertainment ban. (Think of a hotel that throws a New Year’s Eve gala and sells tickets to guests – the hotel can deduct the party costs because it’s selling the experience, not giving it away.)

Bottom line on exceptions: While the general rule is “no entertainment write-offs,” these carve-outs mean you should consider the context. If the spending is on your employees, part of someone’s taxable income, part of a public marketing effort, or directly tied to your revenue, a deduction might still be on the table. However, for typical client entertainment, none of these exceptions apply – those costs remain nondeductible.

Business Meals vs. Entertainment: Separating the Dinner from the Show

A big practical question is how to handle meals now that entertainment is mostly nondeductible. It’s common to take a client out to dinner and maybe a ballgame or show. Under the new rules, the entertainment portion (the game or show tickets) is strictly nondeductible. But what about the dinner where you actually discuss business? Good news – you can usually still deduct 50% of the meal cost as a business expense, if you follow the guidelines.

Here’s the crucial part: meals are NOT considered entertainment if they are billed separately. The IRS explicitly clarified that buying food and beverages separately from an entertainment activity allows the meal to remain deductible (50% limit in most cases). If, however, your meal and entertainment are lumped together in one price, then you’re out of luck – that whole amount is treated as nondeductible entertainment.

Example: You invite a client to a basketball game. You buy game tickets for $200 (entertainment – no deduction) and pay $100 for dinner before the game (business meal – 50% deductible). That dinner yields a $50 write-off.

Now imagine a different scenario: you purchase a deluxe VIP package for $300 that includes game tickets plus food in a suite, with no itemization. Because the food isn’t separately stated, the entire $300 is treated as entertainment. You can’t claim any meal deduction in that case – it’s 0% deductible since it’s all rolled together.

Key takeaways for meals:

Always get separate receipts or itemized invoices for food at entertainment events. If meals aren’t listed separately, you won’t be able to deduct them at all.
You can generally deduct only 50% of business meal costs (e.g. a $200 client dinner yields a $100 write-off). (Note: A temporary 100% deduction for restaurant-provided meals in 2021-2022 has expired.)
Meals must be ordinary and necessary, not lavish, and you (or an employee) must be present with the client. Always document the who, when, where, and why of the business meal (for example, note on the receipt the business purpose and participants), as recommended in IRS Publication 463.
If you’re traveling on business, your meals are still only 50% deductible. Don’t confuse a business trip dinner with entertainment – traveling for work doesn’t make your meal entertainment, it remains a travel meal subject to the 50% rule.

By following these practices, you ensure that you maximize your meal deductions without crossing the line into disallowed entertainment territory.

The State-by-State Twist: Entertainment Deductions on State Tax Returns

So far, we’ve focused on federal tax law (IRS rules). But did you know that some state tax codes didn’t fully follow the federal crackdown on entertainment expenses? State conformity to the TCJA varies. This can lead to situations where an entertainment expense is nondeductible on your federal return but still deductible on your state business return (or vice versa).

Here’s a snapshot of state-level variations in entertainment expense deductions:

State	Entertainment Expense Deduction (State Taxes)
California	Allows 50% deduction of entertainment expenses (California did not adopt the 2018 federal change, sticking to pre-TCJA rules), so businesses can still deduct 50% of client entertainment costs on a CA return.
New Jersey (and Pennsylvania)	Explicitly allow pass-through entities to deduct 100% of M&E expenses (state-specific adjustment).
Most Other States (e.g. NY, TX, FL)	Follow federal rules: 0% deductible for entertainment (no special state-level deduction).

Why does this matter? If you operate in a state like California, you need to track entertainment expenses even though they’re useless federally – because you can still claim the 50% deduction on your California business tax filings. In New Jersey or Pennsylvania, certain businesses (like S-corps or partnerships) might actually get a full state deduction for entertainment, which is a big deal for tax planning.

On the flip side, in states conforming to federal law, there’s no extra break – entertainment is out across the board. Always check your state’s treatment: some states “decoupled” from parts of the TCJA. As of 2025, California is a notable example, still using the Internal Revenue Code as of January 2015 for many business expense rules (thus keeping the old entertainment deduction for state purposes).

For multi-state businesses or those filing in city jurisdictions like New York City, be mindful of each locality’s stance on M&E deductions. The majority mirror the IRS now, but a few outliers can make a significant difference in your state tax liability.

Entertainment vs. Advertising, Gifts, and Travel: Know the Difference

With entertainment expenses off the table federally, businesses have looked for other ways to categorize their relationship-building costs. It’s crucial to understand the difference between entertainment and other deductible expense categories like advertising, gifts, or travel, so you don’t misclassify (or miss out on) a deduction:

Advertising and Marketing: Costs to promote your business (ads, sponsorships, marketing campaigns) are fully deductible. But be careful if a sponsorship or event includes an entertainment perk: allocate that part out. For example, paying for a stadium billboard is advertising (deductible), but the complimentary suite tickets you receive are entertainment (not deductible). In short, deduct the true advertising portion, and don’t try to disguise entertainment as marketing.

Business Gifts: Business gifts are deductible up to $25 per recipient per year – a very low limit. Tickets given to a client when you don’t attend count as a gift (not entertainment), but still only $25 is deductible. For example, a $100 event ticket given as a gift yields just a $25 write-off (the rest is not deductible). So whether you attend (entertainment: no deduction) or just gift it ($25 deduction cap), the tax benefit is minimal.

Travel and Lodging: Business travel costs (flights, hotels, etc.) are fully deductible when the trip’s primary purpose is business. But if you mainly travel to entertain someone (say you fly cross-country just to take a client to a ballgame), those travel costs won’t qualify. Once you’re on a legitimate business trip, any entertainment you do for fun is still nondeductible (though travel meals remain 50% deductible).

Conferences and Professional Events: Registration fees for conferences, seminars, or trade shows are deductible business expenses (education/marketing). If the event includes some entertainment (like a closing party or golf outing), that portion should be separated or allocated. But the core conference fee isn’t entertainment – it’s a business expense. And don’t try to write off personal vacation days around a conference as part of the trip.

The IRS knows businesses still entertain – you just don’t get to deduct it. So, segregate those costs in your records and don’t try to hide them as something else. If the primary purpose of an expense was social or fun (even if business-related), it’s entertainment and not deductible. Focus on properly categorizing what you can deduct (legit advertising, gifts, travel, meals) and keep thorough documentation for those.

Pros and Cons of the Entertainment Expense Deduction Ban

To wrap your head around the impact of these rules, it helps to weigh the pros and cons from a business perspective. Eliminating entertainment deductions has changed corporate behavior. Here’s an overview:

Pros (of No Entertainment Deduction)	Cons
Simplified tax compliance – No need to parse which client outings qualify, because the blanket rule is straightforward.	Higher after-tax cost of entertaining – Businesses now pay the full cost of client entertainment (no tax subsidy), making schmoozing more expensive.
Less abuse of deductions – The IRS no longer subsidizes lavish parties or sports tickets that were seen as loopholes for big spenders.	Potential impact on client relationships – Some companies have cut back on client entertainment, which might limit networking opportunities or goodwill-building.
Encourages alternative strategies – Firms focus on meals, gifts, or marketing (still deductible) to build relationships in more cost-effective ways.	Added complexity – Companies must carefully separate meal vs. entertainment costs for mixed events and keep good records to salvage any meal deductions.
Uniform treatment – All businesses face the same rules, preventing aggressive spenders from gaining a tax edge through entertainment write-offs.	No tax break for business hospitality – Even truly business-motivated entertainment (say, taking a client to a game you sponsor) gets no deduction now.

From a pure tax standpoint, doing away with the entertainment write-off has made recordkeeping a bit easier (just label those costs and don’t deduct them). But it’s also made companies more conscious of every dollar spent on client entertainment, since there’s no tax offset. Some have redirected budgets toward things like client education events or branded gifts (which might have better ROI now). Others still entertain as before but accept the full cost as the price of doing business.

Avoid These Common Mistakes with Entertainment Expenses

The rules may be more stringent now, but that hasn’t eliminated mistakes. Here are some common pitfalls to avoid when dealing with entertainment and related expenses:

Claiming disallowed entertainment – Some businesses still try to deduct client entertainment out of habit. Don’t. Post-2018, any client golf outing, sports ticket, concert, or club due on your return is a red flag and will be disallowed.

Failing to separate meal costs – If you don’t get itemized bills separating food from entertainment, you will lose any meal deduction. Always pay for meals separately or have the venue split the charges on the invoice.

Misclassifying expenses – Don’t try to hide entertainment as “marketing” or other deductible categories. The IRS will catch on in an audit, and you could face penalties. Keep your categories honest: record entertainment for internal tracking, but don’t deduct it on the tax return.

Ignoring valid deductions – Conversely, don’t be overly strict and miss legitimate write-offs. For example, fully deduct your qualifying employee events, and still claim the 50% on business meals. Some assume “no entertainment deduction means nothing related is deductible” and fail to claim partial deductions they’re entitled to.

Poor documentation – If you don’t document the who, what, when, where, and why for business meals or events, you risk losing those deductions in an audit. Keep receipts and notes on business purpose for each expense.

Overlooking state differences – Don’t assume the federal rule applies everywhere. Some states (like California, or New Jersey for certain businesses) still allow entertainment deductions at the state level. Know the rules in your state – otherwise you might miss out on a deduction or make an error.

By staying vigilant and informed on these points, you can avoid costly errors. The IRS has increased scrutiny on meal and entertainment expenses in audits (since the rules changed, they know mistakes are common). Cleaning up your policies and recordkeeping now will save headaches later.

A Brief History of Entertainment Deductions (and Court Rulings)

It’s worth noting that the crackdown on entertainment deductions wasn’t entirely out of the blue. The IRS and courts have long been skeptical of extravagant “business entertainment” claims. Even before 2018, companies had to jump through hoops to justify these expenses. For instance, in the 1980s case Danville Plywood Corp. v. U.S., a company tried to deduct over $100,000 spent on a Super Bowl weekend trip for customers. The court disallowed most of it, finding the outing wasn’t directly related to business despite some attempts at business discussion. This illustrated that even under old rules, you needed a clear business purpose and strict proof for entertainment expenses.

Going further back, the famous Cohan rule from a 1930 case allowed estimated entertainment expenses when records were lacking. Congress later responded by enacting strict recordkeeping rules (Section 274(d)), basically saying: no receipts, no deduction for entertainment or meals.

Over time, Congress tightened the noose on these tax breaks:

1962 – Introduced the “directly related or associated” test to curb abuse of entertainment write-offs.
1978 – Banned deductions for membership dues to clubs (e.g. country clubs, golf clubs).
1986 – Capped business meals and entertainment at 80% deductible (down from 100%).
1993 – Further limited meals and entertainment to 50% deductible.

By 2018, the hammer fell completely on entertainment. The tax law now draws a bright line. Courts since then haven’t seen much litigation on entertainment expenses – the rule is simply clear. The only debates now are about whether an expense even counts as entertainment in the first place. If a taxpayer tries to label an obvious entertainment cost as something else, the IRS (and the Tax Court) won’t allow it. In short, the evolution of the law and court rulings shows a clear trend: steadily reducing and now eliminating tax breaks for activities seen as more personal luxury than true business necessity.

FAQ: Entertainment Expenses and Deductions

Q: Can I deduct any client entertainment expenses in 2025?
A: Generally, no. The IRS disallows deductions for client entertainment (sports events, concerts, golf, etc.) now. Only very specific exceptions (like client meals at 50% or promotional events open to the public) get a partial break.

Q: Are business meals still 50% deductible?
A: Yes. Standard business meals are 50% deductible (as long as they’re not lavish and you have a clear business purpose). Briefly in 2021-2022 they were 100% deductible for restaurant-provided meals, but that provision expired.

Q: What about taking a client to a baseball game and buying food there?
A: Game tickets = entertainment (no deduction). Food & drinks = meal – if separately stated, 50% deductible; if not, then $0.

Q: Can I deduct my country club membership if I use it to meet clients?
A: No. Club dues for social or athletic clubs are completely nondeductible, even if you’re networking for business. This rule has been in place for decades.

Q: Is a company holiday party for employees deductible?
A: Absolutely. A party for the benefit of employees (and their spouses) is 100% deductible to the company. Just ensure it’s primarily for employees and not a client-heavy event.

Q: If I give clients gift cards or event tickets as gifts, can I write that off?
A: Yes, but only up to $25 per person per year. For example, a $100 event ticket given as a gift yields just a $25 write-off (the rest is not deductible).

Q: Do any states allow entertainment expense deductions?
A: Yes – a few do. For example, California still allows 50%, and states like New Jersey or Pennsylvania let certain businesses deduct 100% at the state level. Check your state’s rules.

Q: Will the entertainment deduction ever come back?
A: Unlikely anytime soon. There’s no push in Congress to restore it, so expect entertainment expenses to remain nondeductible for the foreseeable future.

Q: How should I record entertainment expenses in my books if they’re not deductible?
A: Track them in a separate account for internal purposes, but don’t deduct them on the tax return. Simply add those costs back when calculating your taxable income.