Federal vs. California Treatment of Meals and Entertainment Expenses Under IRC §274

IRC section 274 provides the general rule that no deduction is allowed for entertainment, travel, or gifts unless it is directly related to the active conduct of a trade or business.

California generally conforms to section 274 prior to its amendment by the Tax Cuts and Jobs Act and the One Big Beautiful Bill Act. California does not conform to the TCJA and OBBBA amendments that eliminate the deduction for entertainment expenses, limit the employer’s deduction for meals provided for the convenience of the employer to 50% of expenses for the 2018 through 2025 tax years, and make them non-deductible in post-2025 tax years, and repeal the deduction for qualified transportation fringe benefits provided to employees.

Entertainment Expenses

This means that expenses incurred for client entertainment like sporting event tickets, theater tickets, golf outings, yacht excursions, etc. are not deductible at all for federal purposes but are 50% deductible for California. Any client meals purchased in conjunction with the entertainment are subject to these same limitations.

Client Meals

Client meals related to a business meeting and meals purchased for employees while traveling for business are 50% deductible for both federal and California purposes.

Meals Provided for the Convenience of the Employer

Meals provided for the convenience of the employer like tax season meals in office, employee meals at seminars, and office coffee, water, and snacks are 50% deductible for federal purposes through December 31st 2025, but they’re not deductible at all after December 31st.

However, note that meals are classified as de minimis employee meals and meals provided for the convenience of the employer will still be 50% deductible for federal purposes after December 31st 2025, but only for a very limited number of employees, such as crews of certain commercial vessels, oil platform and drilling rig workers, and crews of certain fishing vessels and processing facilities.

California Treatment of Employer-Provided Meals

For California, meals provided for the convenience of the employer are 100% deductible if they qualify as de minimis fringe benefits, and they’re 50% deductible if they do not qualify as de minimis fringe benefits.

Examples of De Minimis Fringe Benefits

Examples of a de minimis fringe benefit that is 100% deductible for California purposes are occasional meals or meal money provided to enable an employee to work overtime, such as during tax season, and holiday parties, company picnics, and other occasional employee appreciation events.

Federal vs. California Treatment of Meals and Entertainment Expenses - Key takeaway

The same meal or entertainment expense can be fully nondeductible federally, partially deductible federally, or fully deductible in California depending on the facts. Proper classification matters. Mislabeling an expense can easily lead to errors, especially for California filers who assume federal rules apply automatically.

2025 Deductibility Summary (Federal vs California)

Entertainment (clients, prospects)

• Federal: 0% deductible

• California: 50% deductible

Includes tickets, golf, shows, yachts, and related meals.

Client meals (no entertainment)

• Federal: 50% deductible

• California: 50% deductible

Must involve a business discussion.

Employee travel meals

• Federal: 50% deductible

• California: 50% deductible

Meals for employer convenience (office meals, tax season, seminars, snacks)

• Federal (2025): 50% deductible through 12/31/2025

• California:

– 100% deductible if de minimis

– 50% deductible if not de minimis

De minimis meals (California)

• 100% deductible

• Examples: overtime meals, holiday parties, company picnics, appreciation events

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