As the year winds down, now is the perfect time to review your business expenses for deductibility. Accelerating deductible business expenses into this year can reduce your 2025 taxes — and, in some cases, provide permanent tax savings.
This year’s year-end tax planning is especially important in light of the One Big Beautiful Bill Act (OBBBA), which makes permanent or revises several provisions from the Tax Cuts and Jobs Act (TCJA) that previously limited or eliminated certain deductions.
Let’s take a closer look at how these laws affect your ability to deduct business expenses in 2025 and beyond.
Understanding “Ordinary and Necessary” Business Expenses
The IRS doesn’t provide a single, comprehensive list of deductible business expenses. Instead, most deductions fall under Internal Revenue Code Section 162, which allows businesses to deduct “ordinary and necessary” expenses.
- Ordinary expenses are common and accepted in your industry.
- Necessary expenses are helpful and appropriate for your business (but don’t need to be indispensable).
However, even if an expense meets these criteria, it may still be nondeductible if the IRS considers it lavish or extravagant.
OBBBA and TCJA Changes to Business Expense Deductions
Recent legislation under the OBBBA and the TCJA continues to shape what businesses can and cannot deduct. Below are key categories affected by these laws.
Entertainment Expenses
The TCJA eliminated most deductions for entertainment expenses starting in 2018. However, certain employee entertainment events — such as company-wide parties — remain deductible if they meet IRS requirements (for example, the entire staff must be invited). The OBBBA did not change these rules.
Meals
Both the TCJA and the OBBBA preserve the 50% deduction for business meals.
- Meals associated with nondeductible entertainment are still 50% deductible if purchased or itemized separately.
- Through 2025, meals provided on your premises or via an on-site cafeteria for the employer’s convenience are also 50% deductible.
- The OBBBA retains the scheduled elimination of this deduction after 2025, though some exceptions will qualify for a 100% deduction.
- Meals sold to employees generally remain 100% deductible.
Transportation Expenses
Transportation expenses directly related to business travel remain fully deductible if they meet applicable IRS rules.
However, the TCJA permanently eliminated most deductions for qualified transportation fringe benefits such as parking, vanpooling, and transit passes — though these benefits remain tax-free to employees within certain limits.
The OBBBA also permanently eliminates the qualified bicycle commuting reimbursement that was scheduled to return in 2026.
Employee Business Expenses
The TCJA suspended employee deductions for unreimbursed business expenses through 2025. The OBBBA has now made that suspension permanent.
If your business doesn’t currently have an employee reimbursement plan, consider implementing one before 2026. As long as the plan meets IRS requirements, the reimbursements are deductible to the business and tax-free to employees.
Planning Ahead for 2025 and 2026
Understanding which business expenses are deductible — and how tax law changes impact those deductions — is critical to smart year-end tax planning. By identifying expenses to accelerate into 2025, your business can take advantage of current deductions and potentially lower next year’s tax liability.
- Review your deductible business expenses
- Evaluate the impact of OBBBA and TCJA provisions
- Develop a 2025 year-end tax strategy that positions you for long-term savings
Contact us today to review your expenses and start planning for 2026 with confidence.