, you'd begin to believe that every adolescent's goal in life is to be part of the "in crowd." Well, you survived high
school without them and looking back, you really were ok after all. You hung out with your buddies, did homework together, and commiserated about being left out.
Now, you're an accomplished adult but you've still got the
"let's join things" mentality. You've been reading the books about
"networking" and you're gung-ho to overcome your shyness and apply these
concepts to your marketing plan. Here's the tax question-if you join every
organization in sight can you deduct the dues as business expenses on your
tax return? The simple answer: Yes and no!
In the good old days, the answer was simply "yes," but the deductions were
abused and got out of hand so Congress decided to raise tax revenues by
wiping out a large part of these savings. In 1993, they added a tiny,
little paragraph to the tax code [1.274-2(iii)] that eliminated club
deductions, effective January 1, 1994.
Whose dues can't you deduct?
The intent of this change was to eliminate dues paid to health, social,
golf, airline, hotel, dining, and country clubs. Regardless what you call
the club, the IRS will look at the underlying purpose to decide if it
qualifies as a deduction. Suppose the only club you belong to is the
Friday Night Gourmand Association-a bunch of folks who visit all the
all-you-can-eat restaurants in the district. What if 80% of the members
have become your clients or customers? What if this club is the source of
all your clients or customers, your business is profitable and you're
paying taxes? Nope! Despite the exception that permits you to take a
deduction for the portion of club dues that you can prove is related to
business, Code section 274(a)(3) says "no deduction shall be allowed under
this chapter for amounts paid or incurred for membership in any club
organized for business, pleasure, recreation, or other social purpose."
That's pretty clear.
But, what's a business club? Shouldn't it, by definition,
be deductible for business purposes? Don't be silly. I can only surmise
that a business club might be comparable to an investment club or a
timeshare club. These clubs are basically groups of people who have banded
together to share expenses. While you might not be able to take a
business deduction for the dues, you would still be able to add the costs
of membership to the investment and reduce your profit - or take the costs
as an investment expense if you are able to itemize on Schedule A.
Liberty, Equality, Fraternity!
You've always been a member of the Benevolent Protective Order of Elks,
MOOSE, the Shrine or your synagogue, church, temple or coven. Fraternity
(or Sorority) is out! Lodges and religious organizations are not
considered acceptable as business deductions. However, if you can prove
that you spend a significant amount of time using these organizations to
network, you may prorate the dues between personal and business time
devoted to the organization. This means you must keep detailed logs of
your personal and business-related activities within the order. You may
also be able to deduct some (or all) of the dues as charitable
contributions, since these are non-profit organizations.
Having My Way
Surely, there must be some tax benefit I can gain from all my
networking-besides increasing my taxable income? What's left? Specific
organizations related to your profession or earnings capability include
trade unions, labor unions (if you are self-employed), professional
organizations (IEEE, AICPA, SAC, DGA, NAEA), trade associations,
networking groups, licensing groups, leads groups, Chambers of Commerce,
and convention bureaus. There are associations you belong to that provide
continuing education, training, resources, pooled marketing, etc. Not only
are these dues deductible, but if you use the organizations properly, your
business will become extremely successful!
Politics and Strange Bedfellows
Some organizations or associations that look like professional groups
lobby for or modify legislation. Dues paid to groups that are involved in
the political process are never deductible. Most organizations that do
lobbying either have a separate, non-profit arm or create a separate fund
specifically for lobbying purposes. That way, you can designate a portion
of your dues-or make specific, non-deductible donations to the legislative
entity.
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Record-Setting Concepts
If your activities with associations, organizations and groups often
involve both social and business circumstances, it's advisable to keep
records of your activities, particularly if the memberships are expensive.
The more clearly you can tie your activities with an organization directly
to your business, the more likely you are to win if audited. You don't
have to generate clients directly from the group-you might instead find a
supplier, a mentor, an advisor or even a business partner. What kinds of
things should you track? Usage of facilities, products and services as
well as meetings, conferences, trade shows, entertainment events, and
meals. Make note of the date, companion, business purpose, cost (including
tips), and location. Many of these organizations provide ancillary
services-books, research materials, credit lines or credit cards, travel
discounts, professional or health insurance and more.
If you play your cards right and back yourself up, you can deduct
practically anything! Even a cruise (didn't your organization set up
continuing education on the ship?).
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