As the year draws to a close, now is the perfect time to review your business expenses and identify opportunities for tax savings. Strategic year-end planning can help reduce your 2025 tax liability and may even result in permanent savings. With the passage of the One Big Beautiful Bill Act (OBBBA) — which makes certain Tax Cuts and Jobs Act (TCJA) provisions permanent or revised — it’s more important than ever to understand which expenses remain deductible and which have changed.
Understanding “Ordinary and Necessary” Business Expenses
The Internal Revenue Code (IRC) Section 162 allows deductions for all “ordinary and necessary” business expenses. While there’s no master list of deductible items, the IRS generally defines them as follows:
- Ordinary: Common and accepted in your trade or industry.
- Necessary: Helpful and appropriate for conducting your business (not necessarily essential).
However, expenses deemed lavish or extravagant by the IRS may be partially or entirely non-deductible, even if they meet the above criteria.
Key Deduction Updates Under the OBBBA and TCJA
Here’s a look at how several key categories of business expenses are impacted:
1. Entertainment Expenses
The TCJA eliminated most entertainment deductions beginning in 2018, and the OBBBA did not restore them.
- Still Deductible: Entertainment for employee events, such as holiday parties, if the entire staff (not just management) is invited.
2. Business Meals
Business meals remain 50% deductible, provided they are not part of nondeductible entertainment.
- Meals purchased separately or clearly itemized from entertainment remain eligible.
- The TCJA extended the 50% deduction for employer-provided meals through 2025. Beginning in 2026, most on-premises meal deductions are scheduled for elimination — though the OBBBA allows certain exceptions that qualify for 100% deductibility.
- Meals sold to employees continue to qualify for full deduction.
3. Transportation and Commuting
Transportation for business travel remains 100% deductible, but the TCJA permanently eliminated deductions for qualified transportation fringe benefits, such as parking and transit passes.
- These benefits are still tax-free for employees, subject to applicable limits.
- The previously suspended bicycle commuting reimbursement will not return — the OBBBA permanently removed it.
4. Employee Business Expenses
Before the TCJA, employees could claim unreimbursed business expenses as itemized deductions. The TCJA suspended these through 2025, and the OBBBA has now made that suspension permanent.
- Businesses should consider creating a reimbursement plan beginning in 2026. When structured correctly, reimbursements are deductible by the business and tax-free for employees.
Smart Year-End Planning Tips
Now is the time to evaluate your deductible expenses and consider accelerating payments before December 31. Doing so can:
- Lower your taxable income for 2025.
- Provide potential long-term savings if current deduction limits change.
- Help you plan proactively for upcoming OBBBA phase-outs and 2026 changes.
Remember, every business is different — and so are its tax opportunities. Working with a trusted CPA ensures you capture every allowable deduction while remaining fully compliant with the latest IRS and legislative updates.
Plan Ahead for 2025 and Beyond
Tax law continues to evolve, and the OBBBA introduces both challenges and opportunities for business owners. The experts at Botwinick & Co., Certified Public Accountants can help you:
- Review your current expenses for deductibility.
- Identify opportunities to accelerate or defer costs.
- Develop a comprehensive tax-saving strategy for 2025 and 2026.
📞 Contact Botwinick & Co. today to schedule your year-end tax review and take control of your financial future.
