As a small business owner, you and/or your business probably pay dues to certain organizations or facilities. These payments may be motivated by business reasons. The tax law is very specific about whether dues are or are not deductible. It’s helpful to know upfront what the after-tax cost of dues will be. For example, if you are in the 24% tax bracket and pay $100 in dues that are deductible, the after-tax cost is only $76. You save $24 in federal income taxes (and more if you also pay state and local income taxes). But not all dues are deductible.
Dues that are deductible
You may belong to various business groups or organizations, and dues that you pay are usually treated as ordinary and necessary business expenses. They are fully deductible; there’s no dollar limit. For instance, if you pay dues to a business networking group such as BNI, you can write off the dues.
Examples of organizations for which dues are deductible include:
- Boards of trade
- Business leagues
- Chambers of commerce
- Civic or public service organizations
- Professional organizations, such as bar associations and medical associations
- Real estate boards
- Trade associations
But if any part of the dues is used toward lobbying or political activity, this portion is not deductible. Typically, the organization will provide you with this information, so you know how much of the dues is deductible.
Dues that are not deductible
Not all dues you pay are deductible, even if your membership is because you plan to conduct business at the club or facility. You can’t deduct dues (including initiation fees) for membership in any club organized for pleasure, recreation, or other social purposes, even if you are a member for business purposes and conduct business at the club.
This includes dues to:
- Airline clubs
- Eating clubs
- Country clubs
- Fraternal lodges
- Golf and athletic clubs
- Lobby groups
But if you take a customer, client, or vendor for a meal at a club you are a member of, you can deduct the cost of the meal, subject to the usual rules and limitations (i.e., only 50% of the cost is deductible).
Who gets the deduction?
If otherwise deductible dues are paid by a business, then the business gets to claim the deduction. If an owner pays the dues, then it depends.
- If the owner is self-employed (e.g., a sole proprietor filing Schedule C), then the dues are deductible. Because many types of dues are nondeductible, it’s a good idea to list the membership cost that is deductible as “fees” on the tax return (e.g., Chamber of Commerce fee).
- If the owner is an employee (e.g., a shareholder of an S corporation), then the dues are not deductible. Unreimbursed employee business expenses subject to the 2%-of-adjusted-gross-income floor cannot be claimed as an itemized deduction. It is advisable for an S corporation to have an accountable plan so that a shareholder-employee can be reimbursed tax free for paying dues and other expenses covered by the plan. The corporation claims the deduction for the payments.
Final thought
As with any business expense, be sure to maintain documentation if you are deducting the cost of dues. A receipt, credit card statement, or other documentation is required.
Find more about managing a business expense in this list of blogs.
