As the year comes to a close, now is the perfect time to review your business expenses and determine which costs are deductible. Accelerating deductible expenses into this year can help reduce your 2025 tax bill — and in some cases, even create permanent tax savings.
It’s also essential to understand how the One Big Beautiful Bill Act (OBBBA) affects expense deductions, as it makes several Tax Cuts and Jobs Act (TCJA) provisions permanent or revised.
“Ordinary and Necessary” Business Expenses
There isn’t a single comprehensive list of deductible business expenses in the Internal Revenue Code (IRC). While some deductions are explicitly stated or disallowed, most fall under IRC Section 162, which allows businesses to deduct “ordinary and necessary” expenses.
- Ordinary expenses are those that are common and accepted in your trade or industry.
- Necessary expenses are helpful and appropriate for your business, though not necessarily essential.
Keep in mind that even if an expense qualifies as ordinary and necessary, the IRS may disallow it if it’s considered lavish or extravagant.
OBBBA and TCJA: What’s Changed
Here’s a breakdown of how the OBBBA and TCJA impact the deductibility of various business expenses:
Entertainment Expenses
- The TCJA eliminated most entertainment deductions beginning in 2018.
- However, employee parties remain deductible if they meet specific criteria — for example, the event must include all employees, not just management.
- The OBBBA did not modify these rules.
Meals
- Both TCJA and OBBBA maintain the 50% deduction for business meals.
- Business meals associated with nondeductible entertainment remain 50% deductible if purchased or invoiced separately.
- Through 2025, meals provided on the employer’s premises (e.g., cafeterias) are 50% deductible — a reduction from the previous 100%.
- Starting in 2026, this deduction will generally be eliminated, except for limited exceptions qualifying for 100% deduction.
- Meals sold to employees can still be fully deductible.
Transportation
- Business travel expenses remain 100% deductible, provided they meet IRS requirements.
- The TCJA permanently removed most deductions for qualified transportation fringe benefits like parking or transit passes.
- These benefits are still tax-free for employees up to the applicable limits.
- The OBBBA leaves these rules unchanged.
- Additionally, bicycle commuting reimbursements — once tax-free — are permanently eliminated under OBBBA.
Employee Business Expenses
The TCJA suspended, and the OBBBA permanently eliminated, employee deductions for unreimbursed business expenses (previously listed as miscellaneous itemized deductions).
If your company doesn’t already have an employee reimbursement plan, now is a good time to consider implementing one for 2026. When properly structured, these plans allow businesses to deduct reimbursements while keeping them tax-free for employees.
Planning for 2025 and 2026
Determining which business expenses are deductible under the evolving tax laws can be challenging. Our team can help you:
- Review your 2025 business expenses
- Identify deductible costs
- Strategically accelerate expenses before year-end
- Plan ahead for 2026 with a proactive tax strategy
Contact us today to discuss your year-end tax planning and ensure your business maximizes every available deduction.
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