2026 Meals & Entertainment Tax Changes: What AI and Tech Startups Need to Know

If your startup picks up client lunches, team dinners, or conference tabs, the tax treatment for business meals and entertainment expenses is about to get tougher. Starting in 2026, several meal deductions that were still partially allowed under the Tax Cuts and Jobs Act (TCJA) are set to expire, and the new OBBBA legislation will tighten rules for employer-provided meals. That means less tax write-off, more need for clean documentation, and stricter accounting hygiene.

If your startup is trying to stay compliant ahead of these tax changes, Afternoon’s bookkeeping and tax services can help you stay audit-ready and proactive.

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Quick Facts

For most small AI or SaaS companies, here’s the current breakdown under IRC §274 business meals rules:

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What’s changing in 2026

End of the “convenience-of-employer” meal deduction

The TCJA allowed a 50% deduction for on-site meals provided for the employer’s convenience (for example, catered lunches during crunch time). That 50% drops to 0% after December 31, 2025.

If you feed your devs during long sprints, those costs will soon be non-deductible business expenses.

Entertainment remains non-deductible

Post-TCJA, most entertainment expenses were disallowed, and that continues. You can’t deduct the cost of a game ticket or show. Only the food portion, if itemized, stays 50% deductible.

Documentation expectations rising

The IRS documentation requirements for meals and entertainment are tightening. For every meal claimed, you’ll need:

• Date and place of the meal
• Business purpose (why you met)
• Names and roles of attendees
• Receipt showing food vs entertainment costs separately

Many accounting platforms (like Brex and Ramp) now have built-in fields for this data — start enforcing that internally.

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Why this matters to founders

If you’re running a lean AI startup or SaaS company, the meals and entertainment deduction line may look small, but it adds up fast when you include:

• Weekly team lunches
• Client dinners post-demo
• Travel to conferences
• In-office food or snack programs

Once the deduction for employer-provided meals drops to 0%, your effective after-tax cost for these perks rises.
For a startup still burning cash, that could mean smaller tax shields and potentially higher estimated tax payments.

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Smart ways to adapt

Clean up your chart of accounts

Create distinct expense categories in QuickBooks or your accounting system:

• Meals: Client (50%)
• Meals: Employee Event (100%)
• Meals: Employer-Provided (50% → 0%)
• Entertainment (Non-deductible)

This makes year-end classification and audit defense much easier.

Require receipts and attendee details

Make it company policy to attach receipts and note attendees right in your expense system.
Even a short “Lunch w/ client re: AI workflow proposal” helps substantiate and aligns with IRS substantiation rules for meals.

Review office-meal programs

If you provide recurring catered lunches, consider:

• Offering meal stipends taxable to employees instead
• Adjusting your budget expectations

Consult your tax pro before 2026

Ask them to model how the sunset rules will affect your tax deductions for meals and entertainment.
For many software firms with hybrid teams and regular meetups, the impact can be material.

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Takeaway

Tax law keeps swinging between generosity and restriction. For now, the window closes after 2025 on most employer-meal deductions.

Startups that build a healthy expense policy, automate documentation, and clearly separate meals from entertainment will save themselves big headaches at tax time and show better discipline to investors and auditors alike.

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How Afternoon.co can help

We automate your bookkeeping, keep your chart of accounts organized, and flag upcoming IRS and state-level changes, so you’re never caught off guard when new rules (like the 2026 meal deduction phaseout) take effect.

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Sources

• Bloomberg Tax
• PKF O'Connor Davies
• Thomas Howell Ferguson P.A.
• Baker Newman Noyes
• The Tax Adviser