Maximizing Meal Expense Deductions: IRS Rules and Exceptions Every Organization Should Know

Meal Expenses: An Overlooked Tax Opportunity

Meal expenses are often an overlooked area in tax planning, with significant potential to affect an organization’s bottom line. While the IRS generally allows only a 50 percent deduction under IRC §274, certain circumstances may permit full deductibility. Understanding these exceptions enables businesses, including tax-exempt organizations that may incur these expenses during an unrelated trade or business, to realize savings. 

While tax-exempt organizations do not pay income taxes, they are able to deduct it on their IRS Form 990T the same way that a for-profit business can, if they have an unrelated business where the meal expense is directly associated with the activity.

Exceptions to the 50% Deduction Rule

Full deductibility may apply in situations such as employee appreciation lunches, holiday parties, or other team-building events, which generally qualify as employee recreational activities. By contrast, meals sold to customers—such as in catering or hospitality—are treated as normal cost of goods sold and are not subject to the meal deduction limit. Recognizing these distinctions allows organizations to maximize deductions.

Travel Meals and Documentation Discipline

Travel meals present another area of potential ambiguity. Even when reimbursing team members through an accountable plan, these costs typically remain subject to the 50 percent limit unless included in taxable wages. AAFCPAs advises that clients adopt disciplined documentation practices and a proactive approach to tracking meal expenses. With careful planning, organizations can confidently capture available deductions, reduce unnecessary tax exposure, and align tax strategies with broader financial goals.

How We Help

AAFCPAs’ tax practice helps businesses, nonprofits, and high net worth individuals navigate complex tax rules while identifying opportunities for savings and operational efficiency. Our integrated team of CPAs, tax specialists, and wealth advisors delivers tailored strategies that go beyond compliance, supporting clients in preserving cash, reducing risk, and making informed financial decisions.

We provide proactive guidance across business and individual tax planning, state and local, international, and nonprofit matters, focusing on outcomes that drive long-term value. Clients benefit from actionable insights, optimized deductions and credits, and clarity in a constantly evolving regulatory environment. By aligning tax strategy with broader financial goals, AAFCPAs helps organizations streamline processes, anticipate regulatory changes, and position themselves for sustainable growth.

These insights were contributed by Tyler Champagne, CPA, MSA, Director.

Questions? Reach out to our authors directly or your AAFCPAs partner.

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