Dues for Clubs and Organizations
The IRS is strict about deducting dues for most kinds of clubs on business tax returns.
You can only deduct dues and expenses on your business tax return for clubs whose purpose is business-related. The purpose and activities of the club, not the name, is the determining factor in whether you can deduct club dues.
Even if the club purpose is business-related, there are still some limits on deducting expenses:
- You can't deduct any entertainment expenses. The new tax law (effective 2018) eliminated any business deductions for entertainment.
- You can deduct meal expenses, but only 50% of the cost and you must be able to show a business purpose (meeting with a client, for example).
For example, if you belong to a professional organization you can deduct the dues. But if the organization has a golf outing, that's social/entertainment, and you can't deduct those costs. If there is an awards dinner, you can only deduct 50% of the cost of the meal.
Change in Tax Law for Employee Deductions
The 2017 Tax Cuts and Jobs Act no longer allows employees to deduct club dues as a professional expense on their individual tax returns, effective for 2018 through 2025 tax returns). This expense used to be deductible as a Miscellaneous Expense on Schedule A.
Club Dues You May Not Deduct
You cannot deduct does for these types of clubs:
- Entertainment activities or facilities
- Business luncheon clubs
- Recreation or sport, including golf clubs, country clubs, health and fitness clubs
- Airline or hotel clubs (like the airline clubs at airports)
- Any club with a social purpose
You also can't deduct the cost of a country club, for example, arguing that it would be "conducive to business discussions."
Club Dues You May Deduct
You may deduct costs for dues to professional organizations, and those organizations which you can show are necessary to conduct your business. For example, your dues to the Chamber of Commerce are deductible if you can show that your Chamber membership allows you to promote your business.
You may deduct dues you pay to these types of organizations, as long as the main purpose of the organization is NOT to provide entertainment facilities to members:
- Boards of trade
- Business leagues
- Professional organizations such as bar associations and medical associations
- Real estate boards
- Trade associations
- Personal or hobby clubs
You can also deduct dues to public service organizations like the Rotary or Lions clubs as long as their main purpose is to help communities and not to provide members with entertainment.
The difference between these club dues, which are deductible, and dues to non-deductible clubs is the purpose. The non-deductible clubs have purposes which are primarily entertainment, and the IRS says that entertainment is not a business purpose.
Club Dues as Compensation
Some businesses pay club dues for executives. But you can't have it both ways. If you pay club dues for an employee, this is considered compensation, even though you cannot deduct it as a business expense. You must report this compensation to the IRS, and the employee must pay income tax on this compensation.
Club Expenses as Entertainment
Even though you can't deduct the cost of a non-business club as a business expense, you can deduct the cost of a meal at a club as a business expense. For example, if you have a business luncheon for clients at a country club, you can't deduct the cost of club dues, but you can deduct the cost of the meal. The purpose of the event must be for business purposes, and you should be able to prove that purpose. The event should also not be "lavish or extravagant."
Don't forget that entertainment expenses are never deductible as a business expense and meal expenses are subject to a 50 percent limitation.
Where to Show Deductible Club Expenses
For deductible club dues, you may include these deductions on your business tax form, depending on your business type:
Disclaimer: This article is intended to give you a general overview; it's not meant to be tax or legal advice. If you want to deduct club dues on your business tax return, check first with your tax professional.