This post is part of a 9-part series called “Turn Your Side Hustle Into a Tax-Saving Business.”
In this series, you'll learn how to legally lower your taxes, take advantage of IRS rules, and treat your side hustle like a real business.
Not All Deductions Are Treated Equally
So far, you’ve learned how to deduct ordinary and necessary business expenses under Section 162. But some types of expenses have special rules and limits—and that’s where Section 274 comes in.
This section of the tax code limits deductions for meals, entertainment, travel, and gifts.
Let’s break down what you can and can’t deduct so you stay compliant and audit-proof.
Meals — 50% Deductible (Most of the Time)
Business meals are generally 50% deductible as long as they meet three rules:
✅ The meal must be business-related
✅ You (or an employee) must be present
✅ You must keep a record of who, when, and why
Examples you can deduct 50% of:
Coffee or lunch with a client
Dinner while traveling for business
Meals during a team meeting
Not deductible:
Personal meals
Meals without business discussion
Meals that are "lavish or extravagant"
⚠️Note: In 2021–2022, business meals from restaurants were 100% deductible due to COVID relief—but that has expired.
Entertainment — 0% Deductible
Entertainment is no longer deductible—even if it's with a client.
Not deductible:
Concert tickets
Sporting events
Golf outings
Movie nights
Club memberships
⚠️ Exception: If there's a separately billed meal during the event, the meal portion may still qualify for the 50% deduction.
Travel — Fully Deductible (With Rules)
You can deduct 100% of your business travel expenses, as long as the trip is primarily for business.
What’s deductible:
Airfare, train, or bus tickets
Business-related lodging
50% of meals
Rideshare, taxis, parking, tolls
Internet or phone use while traveling
What’s not deductible:
Personal side trips or vacation days
Travel for family or friends who aren’t part of the business
Commuting between home and your regular work location
Pro Tip: If your trip is part business and part personal, you must split the expenses and only deduct the business portion.
Gifts — Limited to $25 Per Person Per Year
Gifts to clients, customers, or vendors are only deductible up to $25 per person per year.
That’s right—$25 total, not per occasion.
You can also deduct:
Engraving, packaging, or shipping on top of the $25
Small branded items (under $4) like pens or mugs may not count toward the $25 limit
Not deductible:
Lavish gifts
Cash or cash equivalents (like gift cards)
Gifts over $25 (only $25 is deductible)
Keep Good Records
To safely claim these deductions, you’ll need to:
Save receipts
Write down who, what, when, where, and why
Separate personal and business costs clearly
We’ll talk more about documentation in "Recordkeeping & Preparer Responsibilities."
Why This Matters
A lot of people get these deductions wrong—especially with meals and gifts. Claiming too much (or claiming what isn’t allowed) is a common audit trigger.
Understanding Section 274 helps you:
Stay within the rules
Maximize legal deductions
Avoid IRS penalties
Final Thoughts
Not every business expense gets the same tax treatment. Section 274 creates boundaries, but once you know the rules, you can plan smarter and still save big.
Next up: If you use your home for business, don’t miss the powerful home office deduction.
👉 Read -- Claiming Your Home Office (Section 280A)