Maximize Year-End Business Deductions Under OBBBA

As the year winds down, it’s smart to evaluate your company’s expenses to determine which ones are deductible. Shifting deductible costs into the current year can lower your 2025 tax bill—and in some cases, yield lasting tax savings. You’ll also want to consider the One Big Beautiful Bill Act (OBBBA), which made several Tax Cuts and Jobs Act (TCJA) provisions permanent while revising others that had previously reduced or eliminated key deductions.

What Counts as “Ordinary and Necessary”?

The Internal Revenue Code (IRC) doesn’t provide an exhaustive list of deductible business expenses. Although some deductions are expressly authorized or excluded, most fall under IRC Section 162, which allows write-offs for expenses that are both “ordinary and necessary.”

An ordinary expense is one that is customary and accepted in your industry. A necessary expense is helpful and suitable for operating your business, even if not essential. Keep in mind that the IRS may deny a deduction if an expense appears lavish or extravagant.

Effects of OBBBA and TCJA on Deductible Expenses

Here’s how the current laws affect common business expense categories:

Entertainment

Since 2018, the TCJA has largely disallowed deductions for entertainment costs. The OBBBA leaves these restrictions in place. However, expenses for employee gatherings (such as company holiday parties) remain deductible as long as the entire workforce is invited, not just executives.

Meals

The long-standing 50% deduction for business meals continues under both the TCJA and OBBBA. Meals associated with non-deductible entertainment are still 50% deductible, provided the meal charges are separately itemized on receipts or invoices.

Under the TCJA, the 50% limit also applies to meals provided on company premises or in an on-site cafeteria through 2025 (previously 100% deductible). The deduction is set to expire in 2026, though the OBBBA allows some limited cases to remain fully deductible. Meals sold to employees are still 100% deductible.

Transportation

Business-related transportation costs remain fully deductible when they meet IRS rules. However, the TCJA permanently eliminated most deductions for qualified transportation fringe benefits such as parking, transit passes, and vanpooling, though these remain tax-free to employees up to certain limits. The OBBBA does not modify these provisions.

The bicycle commuting reimbursement, once excluded from taxable income, will not return in 2026 as originally planned. OBBBA permanently removed this provision.

Employee Expense Deductions

Employee deductions for unreimbursed business expenses (which the TCJA suspended through 2025) have now been permanently eliminated by the OBBBA.

Businesses that don’t already have an employee reimbursement plan for these expenses may want to consider implementing one for 2026. When the plan meets IRS requirements, reimbursements are deductible by the business and tax-free to employees.

Preparing for 2025

Understanding which expenses are deductible can be complex, especially with ongoing tax law changes. We can help you review your current spending and evaluate whether accelerating certain expenses into 2025 could benefit your business. Get in touch to discuss your year-end tax strategy and plan ahead for 2026.