Meals belong in a 50% deductible expense account. Entertainment belongs in a separate 0% deductible account. A small bucket of meals stays 100% deductible (annual party, de minimis morale events, sales to the public). Don't lump them together. Your tax preparer needs the split at the account level so the right percentage flows to the return. The full chart of accounts framework explains how these accounts fit alongside the rest.
The clean setup uses three accounts: Meals - 50% Deductible, Meals - 100% Deductible, and Entertainment - Nondeductible. Tagging inside one combined account works in theory. It falls apart at year-end when you're racing to reconcile and the tags don't match the GL totals.
Most business meals land here: a working lunch with a client, a coffee with a referral partner, the steak dinner that closed the deal, and (under TY2026 rules, with limited exceptions) most of what used to be team meals. Code the full bill (food and beverage, tax, and tip) to Meals - 50% Deductible. Don't pre-cut the amount. The tax software applies the §274(n) 50% limit at filing.
Example: a $187.40 client lunch with sales tax and a 20% tip goes in at $187.40. The deduction your business actually claims on the return is $93.70. The GL holds the full expense.
Tickets to a Mavericks game, a round of golf at the country club, a charter fishing trip with a prospect. None of it is deductible after TCJA. Code it to Entertainment - Nondeductible. Skipping the account and burying these in Meals is a real audit risk because IRS examiners look for entertainment hidden inside meals categories.
If a client meal happens at a sporting event, split the receipt: food and drink to Meals - 50%, tickets to Entertainment - Nondeductible. Most arenas itemize on the receipt now, which makes the split clean.
A handful of items still hit 100%: the annual holiday party, occasional pizza for the whole team that meets the de minimis test, food sold to the public at FMV, and meals provided on certain vessels, oil and gas platforms, and drilling rigs. Everything else has gotten narrower, especially under OBBBA. See the 2026 rules below before you treat anything as 100%.
The One Big Beautiful Bill Act (OBBBA) reshaped how meals work for tax years beginning in 2026. The 50% rule for normal client meals is unchanged. The 0% rule for entertainment is unchanged. The big change is what happens to the meals you used to provide your own employees.
Client meals, prospect meals, vendor meals, partner meals, and your own meals while traveling for business stay 50% deductible under IRC §274(n). The substantiation rules under §274(d) (date, place, business purpose, attendees, amount) still apply. No receipt or contemporaneous note, no deduction.
This is the bucket that pulls the most volume in any service business. If you're a bookkeeper coding 487 transactions a month for a 15-client book of business, this is where the bulk of your meals coding lives.
The 2017 TCJA killed the entertainment deduction. OBBBA didn't bring it back. A "club dues" line for a country club is also 0%. Clubs organized for business, pleasure, recreation, or social purposes are excluded by §274(a)(3). If a client wants to write off the golf membership, the answer is no.
The 100% temporary deduction for restaurant meals from the 2021 COVID relief package expired 12/31/2022. Don't cite it. Articles still floating around the internet that say "100% for restaurants in 2026" are stale.
This is the change most bookkeepers haven't caught yet. For TY2026 and forward, OBBBA eliminated the employer deduction for meals provided to employees under §119(a). The "employer convenience" exclusion. That covers meals served on the business premises during work hours, overtime meals, and meals provided at business meetings. None of it is deductible to the employer for TY2026+.
A few narrow exceptions survived: meals provided on certain vessels and offshore oil and gas platforms, meals on drilling rigs in remote areas, and meals sold to employees at fair market value (because the FMV sale isn't really an employer-provided meal). Restaurants still get 100% for meals served to employees during work shifts under the existing §274(n)(2) carve-out for the food-service industry, but everyone else loses the line.
For S-Corps and small businesses with on-premise meal programs (the "stocked fridge," the catered lunch every Tuesday, the late-night dinner stipend), this changes the categorization. What used to be 50% deductible team meals in TY2025 is now 0% deductible employee benefits in TY2026.
The 100% deductible bucket survived OBBBA but stayed narrow:
If a client wants to claim the annual party at 100%, document the date, attendee list, and that it was open to all employees. That's the audit defense.
Here are the three patterns you'll hit over and over while categorizing transactions for small business clients.
You see a $94.18 charge at a steakhouse on the business credit card. The note says "lunch with Kevin re: Q2 contract." This is the textbook 50% client meal. Code to Meals - 50% Deductible, capture the attendee and business purpose in the memo line, attach the receipt. If your client is using a receipt-capture app, the memo and receipt should already be linked.
If the same dinner included the spouse of the prospect, the IRS still allows 50% on the prospect's portion under §274(k). Most preparers just take the full bill at 50% as long as the business purpose is documented. Don't try to back into 50% of the food and 0% of the spouse's wine. Document and move on.
The pizza-Friday charge that used to be 50% in TY2025 is now nondeductible in TY2026. Set up an Employee Meals - Nondeductible (OBBBA) account if you're seeing material volume. It makes the year-end conversation with the tax preparer easier and keeps the client from re-asking next quarter. The expense is real, the cash went out the door, but no portion flows to the deduction line.
Two exceptions to keep in mind. The annual party still hits 100%. And de minimis items (the keurig pods, the bottled water, the bowl of fruit on the counter) historically aren't even classified as meals. Code those to Office Expenses or a Meals - 100% Deductible account if you want to preserve the trail.
For TY2025 and prior returns you're still cleaning up, team meals were typically 50% with the same exceptions. Don't apply the OBBBA rule retroactively.
When the owner is on a business trip and grabs a $32 dinner alone, that's still 50% deductible. Code to Meals - 50% Deductible. The substantiation is the trip itself: dates, destination, business purpose, and the receipt. Standard per diem rates from the GSA (or IRS Notice 2025 high-low method) are an alternative for road-warrior clients who don't want to track every receipt. But that's a tax-prep election, not a bookkeeping decision.
For a deeper breakdown of how travel meals interact with airfare, lodging, and conventions, see travel expenses category.
Setting this up correctly in QuickBooks Online (QBO) takes three minutes and saves hours at year-end. The goal is account-level separation, not class or tag separation.
In QBO: Accounting → Chart of Accounts → New. Account Type: Expenses. Detail Type: Meals and Entertainment (QBO still ships the legacy combined detail type. That's fine, the detail type doesn't drive the tax line). Name: Meals - 50% Deductible. Save.
Most automation tools (including Growthy) will start coding meals here once they see two or three transactions tagged with this account. Pattern learning isn't perfect. You review every category change before posting. But it cuts down on the manual click-through volume materially.
Same path. Name: Meals - 100% Deductible. Use for the annual party, de minimis items, and FMV sales to the public. Most service business clients will see two to four transactions a year hit this account. That's normal. Don't force volume into it just because it exists.
If your client is in the food-service industry (restaurant, catering, food truck), this account also catches employee meals served during shifts under the §274(n)(2) industry carve-out. That's a higher-volume use case where the account justifies itself fast.
Set up Entertainment - Nondeductible as a separate expense account, also under the Meals and Entertainment detail type. Yes, it's nondeductible. But the spend still hits the P&L, and the owner needs to see how much money is going to non-deductible client entertainment. Hiding it inside Meals - 50% distorts the meals line and risks an audit issue.
If you want a cleaner P&L, group all three accounts under a parent account called Meals & Entertainment. The parent rolls up the total spend, and the three sub-accounts feed the right tax lines. See expense account categories for the full account structure pattern. The full chart of accounts framework lives in the chart of accounts hub.
A handful of mistakes show up in nearly every clean-up engagement. Catching them up front prevents painful conversations in March.
The single most common error. Tickets, golf, fishing, concerts, sporting events all get coded to Meals because the credit card statement says "Topgolf" and the bookkeeper isn't sure where else it goes. Result: at tax time, the preparer has to dig through every meals receipt to pull out entertainment. Or worse, the return claims a 50% deduction on entertainment and gets hit on audit.
Fix: separate account for entertainment, set up on day one of the engagement. Code to it consistently, even when the dollar amount feels small.
The annual holiday party shows up as a $4,200 catering charge in December. Coded to Meals - 50%, the deduction is $2,100. Coded correctly to Meals - 100%, the deduction is $4,200 — a $2,100 swing on a single transaction. Multiply across summer outings, employee appreciation events, and you're leaving real deduction value on the table.
Fix: ask the owner once a quarter whether any team-wide events happened. Code the cattering invoice to Meals - 100% and attach a one-line memo confirming the event was open to all employees.
§274(d) is unforgiving. Without contemporaneous documentation (date, place, amount, business purpose, attendees and their business relationship) the deduction can be disallowed entirely on audit, even at 50%. A credit card statement showing "Capital Grille $187.40" is not substantiation. The receipt plus the memo line ("lunch with Kevin Patel, prospect, Q2 contract discussion") is.
Fix: receipt-capture app integrated with QBO, mandatory memo on every meals transaction, monthly review for blank memos. Receipts plus memos plus the right account = clean audit defense and clean deduction at filing.
Growthy is bookkeeping software, not a CPA firm. This content is educational, not professional advice. Full disclaimer.
Related: Chart of Accounts, Expense Account Categories, Travel Expenses Category
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