California Business Meals & Entertainment Deductions: How State Nonconformity Can Still Save You Money

For many California business owners, professionals, and high-income taxpayers, meals and entertainment expenses remain a confusing—and often misunderstood—area of tax law. While federal rules have steadily eliminated or reduced deductions in this category, California has chosen not to fully conform to recent federal changes, creating important planning opportunities when returns are prepared correctly.

At Velin & Associates, Inc., we regularly help doctors, creators, online business owners, and high-net-worth individuals navigate the differences between federal and California tax treatment so they don’t leave deductions on the table—or trigger avoidable audits.

This article explains how California’s nonconformity to federal rules affects business meals and entertainment, what is still deductible, and how proper planning and documentation can make a meaningful difference.

Federal vs. California Rules: Why the Difference Matters

Internal Revenue Code (IRC) Section 274 governs deductions for entertainment, meals, and gifts. Over the past several years, federal law has significantly tightened these rules—most notably through the Tax Cuts and Jobs Act (TCJA) and the One, Big, Beautiful Bill Act (OBBA).

California, however, generally conforms to Section 274 as it existed before those federal amendments.

This nonconformity creates situations where:

• An expense is not deductible at all for federal purposes, but
• Partially or fully deductible for California purposes

For California taxpayers, especially those with higher incomes, this difference can translate into real state tax savings when handled correctly.

Client Entertainment: Still Disallowed Federally, Partially Deductible in California

Federal Treatment

Under current federal law:

• Client entertainment expenses are completely nondeductible
• This includes:
  • Sporting event tickets
  • Concerts and theater tickets
  • Golf outings
  • Yacht excursions
  • Luxury client experiences

Even if business is discussed, the federal deduction is disallowed.

California Treatment

California does not conform to this federal elimination.

Instead:

• 50% of qualifying client entertainment expenses are deductible for California purposes

Example:

An Amazon Business client invited key wholesale partners to a Los Angeles Lakers game to negotiate contract terms.

• Federal return: 0% deductible
• California return: 50% deductible, properly reported as a state adjustment

For businesses with frequent client-facing activities, this difference alone can mean thousands of dollars in California tax savings.

Client Meals: Similar Rules, Important Distinctions

Client meals fall into two main categories, each with different treatment.

Meals Provided in Connection with Entertainment

If meals are purchased as part of entertainment (for example, food included in a suite at a sporting event):

• Federal: Nondeductible
• California: 50% deductible

Meals During Business Meetings (Without Entertainment)

Meals purchased during:

• Business meetings
• Strategy sessions
• Contract discussions
• Client consultations

are treated more favorably.

• Federal: 50% deductible
• California: 50% deductible

Example:

A client hosted a script development meeting over dinner with producers.

• No entertainment component
• Proper business purpose documented
• 50% deductible federally and for California purposes

Employee Meals While Traveling: Consistent Treatment

Meals provided to employees while traveling for business (such as conferences, shoots, medical seminars, or trade shows) are:

• 50% deductible for federal purposes
• 50% deductible for California purposes

This applies to:

• Doctors attending medical conferences
• Creators traveling for brand partnerships
• Shopify store owners attending trade expos
• Amazon sellers meeting suppliers

Meals for the Convenience of the Employer: Where Major Differences Appear

Federal Rules

For meals provided for the convenience of the employer (such as in-office meals during busy seasons):

• 50% deductible through December 31, 2025
• 0% deductible after December 31, 2025, with very limited exceptions

Post-2025 exceptions apply only to certain industries (e.g., offshore rigs, fishing vessels), which most businesses do not qualify for.

California Rules

California treatment is significantly more favorable.

• 100% deductible if the meals qualify as de minimis fringe benefits
• 50% deductible if they do not qualify as de minimis fringe benefits

De Minimis Fringe Benefits (100% CA Deductible)

Examples include:

• Occasional overtime meals (e.g., during tax season)
• Office holiday parties
• Company picnics
• Employee appreciation events
• Coffee, snacks, and water provided on an occasional basis

Example:

A Dental Practice client provided dinner to staff during extended clinic hours.

• Federal (2026 onward): 0% deductible
• California: 100% deductible as a de minimis fringe benefit

Special Considerations for High-Income and Multi-State Taxpayers

When preparing California returns, state adjustments must be calculated carefully. Simply relying on federal numbers can result in:

• Missed deductions
• Incorrect reporting
• Increased audit risk

At Velin & Associates, we frequently identify California-only deductions for:

• CPA for Doctors
• CPA for Medical Practice
• CPA for High Net Worth Individuals
• CPA for Creators and TikTokers
• CPA for Online Commerce businesses

Documentation Remains Critical

Even when California allows the deduction, taxpayers must maintain:

• A clear business purpose
• Date and location
• Attendees and their relationship to the business
• Receipts and payment records

California auditors closely scrutinize meals and entertainment expenses, especially for taxpayers with:

• Large income increases
• Part-year residency
• Significant state-level adjustments

Strategic Planning Makes the Difference

Understanding California’s nonconformity allows for smarter planning, including:

• Structuring client meetings to qualify as meals rather than entertainment
• Timing employee meals and appreciation events
• Properly classifying de minimis fringe benefits
• Accurately reporting federal vs. California differences

These strategies can meaningfully reduce California tax liability—without increasing audit risk—when implemented correctly.

Work With a California CPA Who Understands the Differences

Federal rules are only half the story. California’s unique tax system requires state-specific expertise.

Velin & Associates, Inc. can help ensure your meals and entertainment deductions are handled properly at both the federal and California levels.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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