As a general rule, no business deduction is permitted for club dues. This rule extends to business, social, athletic, luncheon, sporting, airline, and hotel clubs. However, dues paid to professional or public service organizations are deductible if paid for business reasons and the organization’s principal purpose is not to provide entertainment.
Meal and entertainment expenses paid to a club may be deducted to the extent they satisfy the requirements for a business deduction. For example, if you take a client to your country club for lunch, you must establish that the expense of the meal is directly related to the active conduct of a trade or business. If you can substantiate that a bona fide business discussion took place, you may deduct 50% of the cost of the lunch provided that you or your employee was present and that the cost of the meal was not lavish or extravagant under the circumstances. However, you are not entitled to a deduction for any portion of the dues paid to the country club.
Substantiation is the key to deductibility with respect to meals and other entertainment expenses. Documentation must indicate:
- amount;
- time and place;
- business purpose, and
- the business relationship of the person being entertained.
The position of the IRS is usually total disallowance of meal and entertainment deductions unless records clearly provide the required evidence. Remember, the burden is on the taxpayer to provide sufficient evidential matter to substantiate the amount claimed.
For more information contact Henssler Financial at 770-429-9166 or experts@henssler.com.