If you have grown your business to a point where you oversee dozens of employees and have future expansion in mind, you have probably done some research on common entertainment solutions. If not, it may be time to start thinking about ways to incentives your workers and boost the overall morale around the office. Well, one of the easiest ways to do so is to enroll your business in some program, activity, or facility that would become accessible to everyone. This is where things like country club dues and other membership costs will come to life. This begs the question Can your business deduct country club dues?.
As the tax season comes around, however, you have to start thinking about ways to take advantage of those costs. After all, any non-deductible expense will essentially represent tax-wasted money. While there are many cases where you may simply not be able to find a way around the clearly defined laws, is there any scenario in which your country club dues, per se, will be deductible? Sadly, as of right now, they are very few and far between. Generally speaking, this type of fee is no longer allowable on any business-related tax return, regardless of whether you have a pass-through entity or a corporation. Nonetheless, some minor outliers may help you derive some benefit from your country club dues.
Tax Law Change
Although entertainment costs used to be deductible, the tax law change from 2017 put an end to that. Now, businesses can only deduct half of their meals provided for the convenience of the employer, and entertainment expenses are no longer deductible at all. It is important to note that these provisions are subject to the so-called sunset rule. This means that they will end in 2025. So, unless there are additional changes between now and 2025, meals and entertainment will become deductible once again in a little under 6 years.
Exception for Mandatory Dues
Although you should avoid trying to get around the rules, some loopholes could help you take advantage of your country club dues when it comes to the forthcoming tax season. The first one is to classify them as a mandatory expense that you must pay to run your business. This would only work if you started using the country club in question for client-related meetings and other business-related ventures. Understand that the IRS is on high alert for misclassifications of such costs, especially when they pertain to successful businesses that have high levels of income. So, if you are not using the country club solely to run your business, you should not try to deduct them as such.
Exception for Employees’ Benefits
If your country club membership is only serving the purpose of improving your employee morale, you may have a way to make it deductible. Namely, as per the current laws, employers get to deduct the benefits paid to their workers with very little restriction. This is why these types of costs are some of the most advantageous ones as the employee does not have to include them in their gross income and the employer still gets the full deduction.
So, if your employees indeed use the country club in question regularly, you may have the option to classify it as a non-cash benefit. Doing so will let you deduct it on your tax return without affecting your workers in any way. Still, however, beware of the fact that something like this is a relatively sensitive area that has been recognized as somewhat of an audit trigger for successful ventures. Thus, if you re-classify your country club dues to an actual benefit, be ready to prove your position with tangible evidence that the Internal Revenue Service, or the IRS, will deem reasonable.
If you are unclear on the proper threshold to make any of these two reclassifications, consider reaching out to an accountant or a CPA firm to answer the question if your business can deduct country club dues. Since their job revolves around maximizing your profit, they will generally be able to help you find a way to utilize all of your expenses. Get a free consultation, or get pricing on our virtual tax prep services, now.