Volume 4 Issue 2006

Club memberships offer business owners and professionals a handy venue for entertaining customers, clients, and prospects. While some of the associated costs may be deductible as a business expense, the tax law generally does not allow a deduction for dues paid to a club organized for business, pleasure, recreation, or other social purposes.

What happens when an employer provides an employee with a club membership? In this situation, the employer can turn its dues payment into a fully deductible expense by treating the amount paid to the employee as taxable compensation.

Another option for employer-provided memberships: split the dues expense into two parts, one portion attributable to the employee's business use of the club and the other attributable to personal use. The business-use portion is a nontaxable working condition fringe benefit, and the personal-use portion is taxable compensation. With this method, the employer's deduction is limited to the amount treated as compensation.

These rules do not apply to memberships in professional organizations, civic clubs, business leagues, or chambers of commerce. Dues paid to these organizations are often fully deductible business expenses.