The Tax Consequences of Business Club Memberships
When you're an independent contractor or business owner, you may find yourself joining business club memberships. These organizations may be comprised of other professionals, just like you, who want to network or come together for a specific purpose. The Internal Revenue Service recognizes these clubs as a business expense, and gives you the option of deducting expenses for them.
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Significance
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Business club memberships could be considered "professional societies" and are thus tax deductible under the IRS's rules for deductible business expenses. A business club is a trade organization or professional society made up of other businesspeople or professionals in your field. These organizations typically have membership dues that are paid by you. The dues are deductible on your tax return.
Benefit
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You may deduct business club memberships on your schedule C indicating profit and loss from a business. The membership dues represent a cost of doing business, but these costs also act to reduce your taxable income. As a result, your net income increases. When your net income increases, you have additional funds to spend on business activities, thus allowing you to grow and expand your business.
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Disadvantage
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Business club memberships represent a real cost. While this cost is deductible, it still costs the business money. The tax deduction may increase your net business income, but unless your business is growing and earnings are strong, the increase may be modest or offset by the costs you incur for the club membership.
Consideration
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You should join business club memberships which represent a clear benefit to you. However, be mindful of the costs you incur for these memberships. Even though you receive a tax deduction for these expenses, you should only keep memberships with organizations which help you increase your business's profitability. Also, keep in mind that the membership must be related to your business to be deductible. Personal club memberships are not deductible and may be scrutinized by the IRS, unless they can be justified as a fringe benefit for employees.
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