What Are Political or Lobbying Expenses?
Why They Aren't Allowed Deductions
Political expenses are not tax-deductible as business expenses, nor as personal expenses. The Internal Revenue Service makes this explicitly clear, covering every detail of political and lobbying costs that are defined as nondeductible.
Many businesses end up shortchanging themselves. They pay more in taxes than they have to because they're leaving permissible deductions out of the equation in their efforts to get it right.
The Lobbying Disclosure Act
First, it's important to understand that the keyword here when it comes to political expenses is "lobbying." The money is spent on actions taken to influence legislation. That's what the IRS disallows. But government affairs activities are perfectly OK as long as they don't involve attempted influence.
Some companies don't claim deductions for these permissible expenses, assuming they're political enough to be nondeductible. It can be at least partly chalked up to the Lobbying Disclosure Act (LDA), which requires businesses to report to the federal government quarterly, detailing their lobbying efforts. The confusion stems from the fact that the LDA includes expenses that are deductible.
Yes, it's confusing, so you might want to touch base with a tax professional if you're required to submit an LDA. You'll want to be sure that you understand your company's responsibilities and rights.
Lobbying Expenses Are a No-No
Money used to influence a legislative body at the local, state, or federal level is considered to be a lobbying expense. As such, it's nondeductible. According to the IRS Publication 529, this includes expenses incurred to participate or intervene in any political campaign for or against a candidate for public office. It also includes attempts to influence the general public or segments of the public about elections, legislative matters, or referendums.
Costs associated with communicating directly with covered executive branch officials in an attempt to influence the official actions or positions of those officials aren't deductible. Covered executive branch officials include the president, vice president, an officer or executive of the White House, or Cabinet-level officials and their deputies.
Expenses for doing research, preparing for lobbying activities, and travel to and from these types of activities are nondeductible as well.
As a business, you cannot deduct expenses involved in running a political campaign, or personal tax deductions if you or someone else in your business is running for political office. The IRS also says in Publication 529:
You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. These include qualification and registration fees for primary elections.
Contributions to a campaign committee or a newsletter are also nondeductible.
Other Political Expenses and Contributions
Other types of political activities that are not allowed as tax deductions include expenses for political activities such as campaign dinners and events for political parties or candidates. They include political contributions or gifts to political candidates.
You cannot deduct donations to political action committees (PAC's) or any portion of dues to professional organizations that are designated for political lobbying. Amounts that you pay in union dues that are related to lobbying or political activities aren't deductible, nor are charitable deductions for contributions to a group which conducts lobbying activities that have a direct effect on your business.
An expense is typically deductible if it's not associated with lobbying efforts or any type of bid to influence legislation. This rule means that money spent on monitoring and reviewing government affairs and complying with legislation, either current or proposed, is acceptable, and these expenses can be deducted.
Again, it's a gray area that might require the assistance of a tax professional.
The Old Loophole Is Gone
Businesses used to be able to take advantage of a very small loophole in the "no deductions for political stuff" decree. They were able to deduct up to $2,000 a year in expenses to influence local legislation at the state, county, or city level, including tribal governments.
The Tax Cuts and Jobs Act eliminates this provision from the tax code from 2018 through at least 2025.
This article presents general information. The author is not a tax attorney or tax preparation specialist. Please refer to IRS publications and ask your tax professional if you have questions about specific types of tax-deductible expenses.