As 2025 winds down, now is the ideal time to assess your business expenses for potential tax deductions. Accelerating deductible costs into this year can reduce your 2025 tax liability—and in some cases, lead to permanent savings. It’s also crucial to understand how the One Big Beautiful Bill Act (OBBBA) affects your deductions, especially in light of changes to the Tax Cuts and Jobs Act (TCJA).
What Qualifies as a Deductible Business Expense?
“Ordinary and Necessary” Defined
The IRS doesn’t provide a definitive list of deductible business expenses. Instead, most deductions fall under Internal Revenue Code (IRC) Section 162, which allows businesses to deduct expenses that are both “ordinary and necessary.”
- Ordinary: Common and accepted in your industry
- Necessary: Helpful and appropriate for your business (not necessarily essential)
Even if an expense meets these criteria, it may be disallowed if deemed lavish or extravagant by the IRS.
Key Deduction Changes Under OBBBA and TCJA
Entertainment Expenses
- Most entertainment deductions were eliminated by the TCJA in 2018.
- Still deductible: Employee parties—if the entire staff is invited, not just management.
- The OBBBA did not alter these rules.
Business Meals
- The 50% deduction for business meals remains intact under both TCJA and OBBBA.
- Meals tied to nondeductible entertainment are still 50% deductible if:
- Purchased separately, or
- Separately itemized on receipts.
- Through 2025: Meals provided on-site for employer convenience are 50% deductible (previously 100%).
- After 2025: These deductions are mostly eliminated, except for limited exceptions that allow 100% deductibility.
- Exception: Meals sold to employees remain 100% deductible.
Transportation Benefits
- Business travel expenses remain 100% deductible.
- Deductions for fringe benefits like parking, vanpooling, and transit passes were permanently eliminated by the TCJA.
- These benefits are still tax-free to employees within IRS limits.
- The OBBBA did not change these provisions.
- Bicycle commuting reimbursements: Previously scheduled to return in 2026, now permanently eliminated by the OBBBA.
Employee Business Expenses: What’s Changed?
- The TCJA suspended deductions for unreimbursed employee business expenses through 2025.
- The OBBBA has now permanently eliminated this deduction.
- Action item: Consider implementing an IRS-compliant reimbursement plan for 2026. These reimbursements are:
- Deductible for the business
- Tax-free for employees
Planning Ahead for 2025 and 2026
Navigating what’s deductible under the evolving tax code isn’t easy. A proactive review of your current expenses can help you decide whether to accelerate certain costs into 2025. This strategy could reduce your tax bill and position your business for a smoother 2026.
📞 Need help? Contact us to discuss your year-end tax planning and build a smart strategy for the year ahead.
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