Strategy: Keep entertaining clients at the club. Although the dues are not deductible, you can still write off a portion of out-of-pocket expenses incurred there. Even better: If your company picks up the tab for your club dues or expenses — or both — it can claim top-dollar deductions on its corporate return.
Here’s the whole story: You can deduct 50 percent of your qualified entertainment and meal expenses that are either directly related to or “associated with” your business. Example: If you transact business with a client in a hotel hospitality suite, where the entertainment is incidental, you can write off 50 percent of the cost as directly related entertainment.
But it’s much easier to write off entertainment that’s “associated with” business. In that case, you can deduct 50 percent of entertainment expenses that directly precede or follow a substantial business meeting … without having to discuss one word of business during the entertainment.
Deductions are par for the course
Say your top client is in town to conclude a contract renewal. After you put the finishing touches on the deal, you treat the client to a day at the country club. The client’s spouse also made the trip, so you invite him or her along. And you ask your spouse to join you to fill out the foursome. After a round of golf, you cap off the day with dinner and drinks at the 19th hole.
The day at the club — including the greens fees, rentals and dinner — totals $800 for the two couples. Even though you can’t deduct your club dues, you’re entitled to a $400 deduction for your out-of-pocket expenses. If you entertain clients at the club in the same fashion, say, 10 times during the year, that’s a tidy $4,000 deduction.
Remember: Maintain detailed records, including not only dates and costs, but also the activity itself and the nature of your business relationship with each person you entertain. Also, keep receipts for expenditures of more than $75.
Best approach: Charge the expenses to your credit card.
If your C corporation reimburses you for the out-of-pocket expenditures, you don’t have to pay any tax on the reimbursements. The company can then deduct 50 percent of the qualified entertainment costs.
Tip: Have your company pay your annual club dues. To the extent that you use the club for business purposes, the benefit is tax-free as a “working condition” . Any additional personal benefit is taxable to you as compensation and is deductible to the company.