Are club dues deductible? Yes, no and maybe Tax Matters by David A. Katzman It’s common business practice for many companies to purchase club memberships for several different types of organizations. During today’s tough economic environment, many of those memberships may also be up for review as budget cuts require some belt tightening. If your business is reviewing the necessity of various club memberships, if might also be useful to understand which, if any, of your club memberships are tax deductible. The answer depends on the type and purpose of each organization. Generally, dues paid to professional organizations are deductible. Some examples would be bar and medical associations; other industry-specific professional groups; civic and public service clubs, such as Rotary or Lions clubs; chambers of commerce and boards of trade. Dues paid to clubs where the main purpose is entertainment, recreation or socializing are generally not deductible. For example, dues for country clubs, business luncheon clubs, even airport and hotel clubs fall under the Internal Revenue Service’s disallowance rule. There is also a gray area, where dues may not be deductible even if the club-type falls in the deductible category. The test for this is the business necessity for membership. To be deductible, you must be able to show that your dues were an ordinary and necessary business expense. An ordinary expense is one that is commonly accepted within your industry. A necessary business expense is one appropriate and helpful to your business. This means that dues payments generally qualifying as deductible could be disallowed if the amount paid cannot be shown to be a normal or ordinary business expense. While dues for entertainment-based clubs are disallowed, some expenses you incur at these clubs may still be deductible. For example, if you hold a business dinner at your country club, a portion of the price you paid for the meals may be deductible. The determining factor is the nature of the meeting. Generally, the purpose of the event must be related to actively conducting business. If your event meets the test for a business activity, generally you are allowed to deduct 50 percent of the allowable meal or entertainment expenses—not the entire amount. You apply the 50 percent rule after you determine the portion of an expense that is deductible. For example, a particularly lavish meal may not fully qualify as deductible because extravagant expenses—going beyond what is considered accepted or normal costs—cannot be deducted. If you paid $300 for lunch and drinks with a client at your country club, $200 might be considered lavish or extravagant, so you would be able to deduct just 50 percent of $100. However, the fact that you dined at your country club, where the dues are not deductible, would not impact the deductibility of the business expenses you incurred at the club. If you have questions about the nature of clubs dues your business pays, a tax professional can help you determine which dues may be deducted. David A. Katzman is a certified public accountant licensed to practice in the State of Florida and the Commonwealth of Massachusetts. He is also a certified financial planner and certified senior advisor. Please consult your tax advisor for details and assistance in applying this general information to your specific situation.