By Tom Andrews, CPA
Deducting membership dues has always been a highly scrutinized deduction by the IRS, club memberships are naturally a target because they are considered an entertainment expense and these types of expenses have a strict supporting documentation standard with the Internal Revenue Service.
When it comes to membership dues the IRS distinguishes between dues paid to clubs, which often are not deductible, and dues paid to professional organizations, which are deductible.
Generally, you may not deduct dues paid to social, athletic, sporting, airline, hotel, and luncheon clubs. The IRS views these organizations as providers of entertainment for their members. In contrast, dues paid to professional associations, trade associations, and public service groups may be deductible if you paid the dues for a business purpose and the organization’s purpose is not entertainment. However, other business expenses paid at a club, such as meals, may be deducted to the extent they satisfy the other requirements for a business deduction. If you take your client to your club for lunch during which a substantial and bona fide business discussion takes place you may deduct 50 percent of the cost of the lunch.
Remember that to be deductible, club dues must not only escape this loss disallowance rule, they must also be an ordinary and necessary business expense.
For tax consequences, a club’s activities, not its name nor your reason for joining, control whether the IRS determines if it exists to entertain its members or if it has a business or social service purpose.
Let’s say for example you are a yachting professional based in Fort Lauderdale, you purchase a membership to a local yacht club for you and your family. A few times each month you head down to the club to eat dinner and participate in social activities with some of the other yachting professionals who are also members of the yacht club. Just because you are socializing with other yachting professionals at the club and you may occasionally talk about business does not mean the membership is deductible. Again, as stated above, the membership dues are not deductible, however the extra cost for dining at the club may be 50% deductible to the extent that they satisfy the requirements of a business meal deduction.
It is important to remember that dues for professional associations and trade organizations are generally deductible as long as they are related to your current profession and these types of dues should not be confused with country club or social dues which are the focus of this column.
If you do decide that your yacht club membership is deductible I recommend you keep a journal detailing exactly how that membership is necessary and ordinary to your production of income and you will also want to keep a record of who you meet with at that club along with the business purpose of those meetings.