Regardless of the legal entity a business uses for reporting its income taxes, business owners eventually ask their CPA the following question: “Can I deduct my golf club dues as a federal income tax deduction?”
Generally, you cannot deduct dues paid to social, athletic (swimming pools, tennis courts, bowling alleys), sporting (hunting lodges and fishing camps), airline, hotel (or apartments or vacation resorts), and luncheon clubs. It does not matter whether the facilities used are owned or rented. The IRS generally views these organizations as providers of entertainment for their members. Now if you are familiar with the tax rules, you are likely saying to yourself that as an entertainment expense, you can deduct 50% of these costs for tax purposes.
It is true that entertainment expenses are 50% deductible, but those deductions are not permitted with respect to the facility used. In certain circumstances, if the expense item satisfies the other requirements for a business deduction, an entertainment expense is allowed. For example, if you take your client to your club for lunch or a round of golf, during which a substantial and bona fide business discussion takes place, you may deduct 50% of the cost of the lunch or the round of golf just as you would for a business meal in any restaurant. In other words, in order to be deductible, the expense must escape the disallowance rule and also be an ordinary and necessary business expense. The IRS requirements are that the event was scheduled with more than a general expectation of deriving future income or a specific business benefit, not to promote goodwill with the person you entertained. A business meeting, negotiation, or transaction must actually occur during the meal or entertainment, or immediately preceding or following it. It is not a requirement that “a sale” takes place to be deductible.
As with a meal or entertainment expenditure to be deductible, you must make a contemporaneous summary of the person you met, the date, cost, the business purpose of the meeting, and note if any business was generated by such a meeting.
The IRS distinguishes between dues paid to clubs, which often are not deductible, and dues paid to professional organizations, which are often deductible. The following are not considered clubs for purposes of the disallowance rule:
Chambers of commerce;
Boards of trade;
Real estate boards;
Professional organizations (such as bar associations and medical associations); and
Civic or public service organizations (such as Kiwanis, Lions, Rotary, and similar organizations).
Dues paid to these professional associations, trade associations, and public service groups may be deductible if you paid the dues for a business purpose, and the organization’s principal purpose is not to provide entertainment for members or their guests or to provide those parties with access to entertainment facilities.
Finally, a club’s activities, not its name or 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.