In a recent article the Wall Street Journal discussed some of the tax breaks that are in jeopardy of being repealed.  The top 10 individual tax breaks will cost more than $3 trillion in forgone tax revenues between 2010 and 2014, according to estimates by Congress’s Joint Tax Committee. By contrast, the top 10 corporate tax breaks will cost only $350 billion over the same period. (This disparity isn’t surprising: the individual income tax long has raised far more revenue than the corporate income tax; it currently brings in more than four times as much.)

Here is a rundown of the Joint Tax Committee’s top 10 tax breaks, along with their 2010-14 revenue cost. Medicare doesn’t appear on the list because Parts A, B, and D are counted separately. Added together, they would be in fourth place.

Health insurance: Employer payments for health care, health insurance premiums, and long-term-care insurance premiums aren’t taxed, costing $659 billion.

Mortgage interest: Homeowners may deduct mortgage interest on up to $1.1 million of debt for up to two homes, costing $484 billion for deductions on 34 million tax returns a year.

Capital gains and dividends: Long-term gains and qualified dividends are taxed at a maximum rate of 15%. Total tab: $403 billion.

Pensions: Defined-benefit pension contributions and earnings aren’t taxed (although payouts are), for a total of $303 billion.

Earned-Income Tax Credit: Some 26 million low-income taxpayers a year are expected to claim $269 billion.

Donations:  Charitable contributions are largely deductible, costing $241 billion for 36 million claims a year.

State taxes:  Deductions for state and local income, sales and property taxes will cost $237 billion for 41 million claims a year.

401(k):  Contributions and earnings aren’t taxed (although payouts may be), for a total of $212 billion.

Capital gains at death: Assets held at death aren’t subject to capital gains tax. Total tab:  $194 billion.

Social Security benefits: The portion of Social Security and railroad retirement payments that isn’t taxed comes to $173 billion from 28 million tax returns a year.

General Questions 

1. How is this year’s sales tax holiday different from last year’s holiday?

The August 2011 tax holiday differs from last year’s holiday as listed below:

2. Where can I get complete information about this year’s sales tax
holiday?

Tax Information Publication (TIP 11A01‐03) describes the tax holiday dates, includes definitions of “clothing”
and “school supplies” and also lists examples of taxable and exempt clothing, footwear, accessories, and school supplies. This TIP, mailed to all registered sales tax dealers in June, is also posted on the Department’s website: www.myflorida.com/dor. If you want to read the law that authorized this holiday, you can find Chapter 2011‐76, Laws of Florida, at:

http://laws.flrules.org/2011/76.

3. Why isn’t _______ (any item not listed) included in the tax holiday for school supplies?

Only specific items were identified as exempt school supplies in the law passed by the 2011 Florida Legislature and approved by the Governor. No other items are authorized. The labeling or packaging of the item usually determines whether the item may be purchased tax‐exempt during the three‐day tax holiday. For example, “notebook filler paper” is exempt but paper labeled as “computer paper” is taxable.

4. Are dealers responsible for correctly charging sales tax during the tax holiday? How will business owners know what items are exempt from sales tax?

The Department mailed a List of Taxable and Tax‐exempt Items (in the law) to all registered sales and
use tax dealers. The specific list of items is on pages 5 and 6 of TIP 11A01‐03. This TIP is also posted on the Department’s website: www.myflorida.com/dor.

The list of clothing and school supply items is extensive, but not all‐inclusive. Whether a school supply item qualifies as tax‐exempt is based on the labeling or packaging of the item.

If you have a question about a specific item not listed, contact the Department at 800‐352‐3671, or visit our website: www.myflorida.com/dor.

5. Does the $75 or less tax exemption apply to the first $75 of an item of clothing being purchased? In other words, if the selling price of a clothing item is $80, is the first $75 exempt from sales tax?

 No. The tax exemption applies to items selling for $75 or less. If an item sells for more than $75 ($80 in this example), tax is due on the entire selling price.

6. Does the $15 or less tax exemption apply to the first $15 of a school supply item being purchased? In other words, if the selling price of a school supply item is $20, is the first $15 exempt from sales tax?

No. The exemption applies to school supply items selling for $15 or less. If an item sells for more than $15 ($20 in this example), tax is due on the entire selling price.

7. Can I buy 3 shirts each costing $75 at the same time and have each shirt be exempt from tax? Must I buy each shirt separately to get the tax break?

Yes, you can buy more than one item at a time on the same invoice. You do not have to purchase each item separately to get the tax break. The exemption is based on the sales price of each item, not the total sales amount
on an invoice. Every eligible item of clothing with a sales price of $75 or less sold during the tax holiday period will be exempt from sales tax.  Similarly, every qualified school supply item with a sales price of $15 or less
sold during the tax holiday period will be exempt from sales tax.

8. Is there a limit on the number of items I may purchase tax‐exempt during the three‐day tax holiday? 

No. The exemption is based on the sales price of the item, not the total invoice amount. Each eligible item of clothing with a selling price of $75 or less, and each eligible school supply item with a selling price of $15 or less, bought during the three‐day tax holiday period, is exempt from sales tax.

9. If a key chain is included with a wallet or purse, is the entire purchase taxable?

Yes. Tax‐exempt items sold in sets with taxable items are subject to tax. Exempt items must be sold as a separate item in order to qualify for the exemption. Sets that include both exempt items and taxable items are subject to tax. Exempt items listed on the same invoice as taxable items are exempt (when they are separately identified and separately priced).

10. Why are briefcases, suitcases, and other garment bags not exempt from tax during the holiday period? 

The law (Chapter 2011‐76, Laws of Florida) specifically states that briefcases, suitcases, and other garment bags are NOT tax‐exempt during the tax holiday period.

11. Do business owners have the option of not participating in the tax holiday? 

No. If a business owner mistakenly charges tax in error during the holiday, the owner should refund the tax to customers. If the tax cannot be refunded, the business owner must send the tax to the Department.

12. Are certain business locations not included in the tax holiday?  

Theme parks, entertainment complexes, public lodging establishments, and airports are excluded from participating in the tax holiday. Sales at any of these establishments are taxable as usual.

13. What should a business owner do if he mistakenly collects tax during the sales tax holiday? 

If tax is collected in error, the business owner should refund this tax to customers. If the tax cannot be refunded, the business owner must send the tax to the Department.

14. I bought some exempt items and the store owner charged me tax. What should I do? 

Take your receipt to the store owner and ask for a refund of the tax.

Business Owner Questions 

15. I don’t sell clothes or school supplies. Why did I get the sales tax holiday Tax Information Publication (TIP)? 

The TIP was mailed to all registered taxpayers with active sales and use tax accounts (approximately 554,000 accounts) to inform all dealers who sell clothing or exempt items about the sales tax holiday. Although you do not sell clothing or other exempt items, many dealers whose primary business is something other than selling clothing or school supplies may need this information. For example, a small grocery store may sell t‐shirts, sandals, hats, pens, or pencils.

16. My business is closed. Why am I still getting mail from the Department of Revenue? Cancel my account. 

If you received a TIP, your account was categorized as active and required‐to‐file in June when the Department created the TIP mailing list. To close your account, you must notify us in writing that you want to cancel the
account. We require a statement from you that your business is closed, with the account number that should be cancelled. When your account is cancelled, you should not receive any more TIPs from the Department. You can send a request to cancel your account online at: https://taxapp2.state.fl.us/survey/txinquiry.cfm
You can mail correspondence to:

Taxpayer Services

Florida Department of Revenue

Mail Stop 3‐2000

5050 W Tennessee St

Tallahassee, Florida 32399‐0112

17. Do I need to change my accounting system to show the temporary exemptions?

Your accounting system should adequately identify all tax‐exempt items sold. Exempt sales made during the tax holiday must be documented in the same manner as other exempt sales made throughout the year.

Refunds/Exchanges 

18. If a customer buys an eligible item before the three‐day tax holiday and then exchanges it during
the tax holiday for another eligible item, is the customer due a refund or a credit of tax? 

The customer should get a full refund or credit including tax, for the exchanged item, assuming there is proof that tax was paid. No tax is due on the eligible item purchased during the holiday.

19. If a customer requests a refund or exchange between August 12 and October 31, 2011, without a sales receipt, may the business owner refund the tax? 

For the period August 12, 2011 through October 31, 2011, when a customer returns an item that would qualify for the exemption, no refund of tax may be given unless the customer provides a receipt or invoice showing tax was
paid, or the retailer has documentation to verify that the tax was paid on the specific item.

20. If a customer returns an exempt item and is given a different item of equal price after the holiday period, is sales tax due on the new item? 

If a customer buys a tax‐exempt item during the tax holiday period and later exchanges it for the same item (different size, different color, etc.), no tax will be due, even if the exchange is made after the exemption period.  If a customer buys an item during the tax holiday period and later returns the item after the exemption period and gets a
different item, sales tax will apply to the new purchase even if it is the same price. For example, if a shirt is returned and the customer buys a pair of pants, tax is due on the price of the new pants.

Coupons, Rebates, and Discounts 

21. Why does a store discount coupon reduce the sales price of an eligible item but a manufacturer’s coupon or rebate does not? 

Manufacturer’s coupons do not reduce the sales price of an item.  Therefore, a manufacturer’s coupon cannot be used to reduce the selling price of an eligible item of clothing to $75 or less or a school supply item of $15
or less. Tax is due on the total consideration received by the store for the sale of merchandise.

Manufacturer’s coupon example: If a customer buys a purse for $85 and presents a $15 manufacturer’s coupon, the selling price of the purse is $85 and it is taxable. The $15 coupon is part of the consideration paid by the manufacturer to the retailer; therefore, it does not reduce the retail selling price of the purse.

Discount example: A customer buys a purse for $85 and the store offers a discount coupon of 20%. The selling price of the purse is $68, and the purse is tax‐exempt if purchased during the tax holiday. (Store discount coupons and discounts reduce the sales price of an item.)

Rebate example: Rebates occur after the sale and do not affect the sales price of an item purchased. A jacket sells for $85. The customer receives a $10 rebate from the manufacturer. The rebate occurs after the sale, so it does not reduce the sales price of the jacket. Tax is due on $85.

Gift Certificates 

22. If a gift certificate for clothing is purchased during the sales tax holiday but the customer uses the certificate after the sales tax holiday, can the customer use the gift certificate to make tax‐exempt purchases? 

No, the purchase of the eligible item must be made during the three‐day sales tax holiday to be exempt from tax. When eligible items are purchased during the tax holiday using a gift certificate, the eligible items qualify for the exemption, regardless of when the gift certificate was purchased. However, eligible items purchased after the holiday period using a gift certificate are taxable, even if the gift certificate was purchased during the holiday period.

Rain Checks 

23. Why can’t rain checks issued during the sales tax holiday be used after the holiday to make tax‐exempt purchases? 

To be exempt from tax, the clothing or other eligible item must be purchased during the sales tax holiday. When a rain check is issued, a sale has not occurred. The sale occurs when the rain check is redeemed and the specified
item is purchased. Therefore, if an item is purchased using a rain check after the tax exemption period, the item is taxable.

Layaway Sales 

24. Are clothing items that are put on layaway during the three‐day tax holiday, eligible for the tax exemption? 

Yes. Items placed on layaway (set aside for a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time, and receives the merchandise at the end of the payment period) during the sales tax holiday are exempt from tax. Also, if the final payment on a layaway order of eligible items is made and the merchandise is given to the customer during the holiday period, the items are exempt from tax, regardless of when they were placed on layaway.

Mail Order or Internet Sales 

25. If I buy tax‐exempt items by mail order (normally I pay use tax on Form DR‐15MO), do I get the exemption? 

Yes. All purchases of eligible items during the sales tax holidays are exempt from tax, including purchases made by mail order.

26. How does the exemption apply to sales over the Internet? 

Sales over the Internet are treated the same as mail order sales.

27. How do I proportionally allocate shipping charges between the items ordered on a mail order sale? 

To proportionally allocate the shipping charge, the amount of each item should be divided by the total amount of the items ordered to obtain the percentage that each item bears to the total order. Then multiply the total shipping charge by the percentage for each item to determine the amount of the shipping charge applicable to that item.

The shipping charge for each item must be separately stated on the invoice to the customer. The shipping charge is part of the selling price when determining if an item meets the tax‐exempt threshold.

For example, a customer orders a $75 dress and a $25 shirt, for a total of $100. The shipping charge is $10. Example: $25 / $100 = 25% (25 divided by 100 equals 25%). Therefore, 25% or $2.50 of the shipping charge is allocated to the shirt, and included as part of the selling price of the shirt ($27.50). The other 75% ($7.50) is
included in the selling price of the dress, making the price of the dress $82.50, which would not qualify for the exemption.

Records and Reporting 

28. Do I need to account for tax holiday tax‐exempt sales differently? 

There are no additional record‐keeping requirements. You must maintain your records and document exempt sales as required under current law.

There are two certainties in life:  Death and Taxes.  Most of my posts are in regard to the latter,
but this post is about the former.  You may be confident that you have established an estate plan, but you should also make your spouse and children aware of the existence and location of important
documents they will need after your death. Florida is having hearings investigating large life insurance companies for failure to pay beneficiaries.  The life insurance companies claim they are doing nothing wrong since they have no responsibility to determine that their insureds are still alive.

To avoid these types of problems it is a good idea to have important documents in a place where they can be found.   Here is a list of some of the more important documents to include in that file.

Legal:

• Will
• Trust agreement
• Letter of instructions
• Marriage license
• Divorce agreements
• Durable health-care power of attorney
• Living will

Assets:

• Deeds for your personal residence, investment
  property, and cemetery lot.
• Vehicle titles
• Escrow mortgage accounts
• Contracts regarding loans made and owed
• Investment documents such as brokerage accounts,
  stock certificates and savings bonds
• Operating agreements for businesses in which you
  have an interest
• Tax returns

Bank:

• Bank accounts
• Log in names and passwords
• Save deposit boxes

Retirement:

• Life insurance policies
• IRAs and 401(k)s
• Pension documents
• Annuity contracts

Medical:

• Medical history
• Do-not-resuscitate order
• Authorization to release health care information

Business owners and employees often have a deep emotional attachment to their cars and trucks. A couple of the more common questions I receive from clients include:

•Should I lease or buy my vehicle? and
•Should I own the vehicle personally or through my business?

The answers to these questions are always dependent on the specific facts associated with each taxpayer.

Following is a summary of the more important tax provisions that taxpayers should consider in developing their vehicle acquisition and reimbursement policies, as well as other business expense tax strategies.

Automobile Expenses

We are all aware that an automobile comes with a variety of acquisition and annual operating costs. In many cases taxpayers are using automobiles for significant business purposes, but very few are maximizing the benefits of the tax deductions to which they are entitled. With relatively high gas prices, coupled with other increasing auto expenses, it is in the interest of any taxpayer to consider the impact to their business or personal tax returns and the net after-tax cost of these expenditures.

Actual Costs vs. Standard Mileage Rate

Generally vehicles are used for mixed purposes, which require tracking of personal and business miles. The business percentage is then applied to determine the allowable portion of expenses such as depreciation, gas, oil, tolls, parking, repairs, lease payments and insurance. These expenses are reported on IRS Form 2106 (PDF) for individuals or on their respective business tax return(s).

There are two general methods for claiming auto expenses:

•The “Actual Cost Method” aggregates all (including depreciation) expenses associated with the vehicle during the year. The business-use percentage for the year is then applied to these expenses to determine the deductible annual amounts.

•Another method, which can be more beneficial for certain low-value, high mile-per-gallon or older vehicles, is the IRS “Standard Mileage Rate” method. This simplified method allows the business miles to be multiplied by the IRS standard mileage rate (see 2010 and 2011 in previous post– IR News Release 2011-69). Note this method includes most annual operating costs (including depreciation).

If the taxpayer chooses to use the Standard Mileage Rate in the first year the auto is available for business use, then they can switch methods from year to year, but depreciation is deemed to have been claimed, even in a year when the Standard Mileage Rate is used.

Lease vs. Buy

Making the choice to lease or buy can get very complicated. Purchased vehicles generate deductions in the form of depreciation based on IRS tables, while lessees claim deductions on the business percentage of each lease payment. There are strict limits on annual depreciation of most purchased vehicles and relatively minor scale-backs required on leased vehicles.

Vehicles under operating leases are generally preferred when:

• The car is a luxury vehicle,

• You want to reduce up-front costs and monthly payments,

• You want a new car every few years or

• You prefer to link tax deductions to annual cash outlay.

Another notable deduction should be considered if purchasing a vehicle weighing 6,000 pounds in gross vehicle weight (GVW) or more. Sample vehicles include the Hummer, Range Rover, BMW X5 and Chevy Tahoe. Depreciation can be accelerated using Section 179 and can include a first year deduction up to $25,000 of the cost of these vehicles, plus potential bonus and regular depreciation. Leased vehicles are not entitled to Section 179 or bonus deductions. For additional information please see: Contemplating Buying or Leasing an Auto?

Vehicle Acquisition by Business or Individual

From a bookkeeping standpoint, a the business entity’s acquisition of a business vehicle is often preferable; however, if the entity has a loss for the year, Section 179 and bonus depreciation may be further limited.

Other considerations should include legal issues and insurance costs, which are often higher for vehicles titled in a business entity.

Accountable and Non-accountable Plans

Most employers have employee reimbursement plans in place for employees that incur auto and other business expenses. In general, reimbursed expenses are treated as taxable income (subject to Federal Insurance Contributions Act (FICA) and other payroll taxes) to the employee. This is not a tax-efficient structure for either the employee or employer. Additionally, the increased taxable income also increases payroll taxes for the employer and employee.

However, properly utilized, “Accountable Plans” (see IRS Publication 463) will generally provide significant benefits for both the employer and employee. In order to be classified as an Accountable Plan, Treas. Reg. Section 1.62-2(c)(1) states that the arrangement must require all of the following from the employee:

• Expenses must have a business connection.

• Must account for the expenses adequately and within a reasonable time period.

• Must return excess allowance within a reasonable period of time.

• If the Accountable Plan is operated according to the rules outlined in Treas. Reg. Section 1.62-2(c)(4), then:

◦ No additional income is reported on the employee’s W-2, reducing taxable income and payroll taxes and

◦ The employer is able to claim a full deduction.

If the reimbursement does not meet all of the rules for Accountable Plans, full W-2 reporting is generally required.

Travel and Transportation Expenses

Travel expenses are generally deductible when traveling away from home for business. Travel expenses paid or incurred for business purposes include, but are not limited to:

• Business travel by airplane, train, taxi, bus or car.

• Meals and lodging.

• Tips associated with business expenses.

• Business uniforms, including cleaning and laundry.

• Business calls and Internet service.

• Other similar “ordinary and necessary” expenses related to your business travel.

Meals and Entertainment Expenses

Generally, there are no deductions allowed for expenditures or facilities associated with “entertainment, amusement or recreation.” However, meals and entertainment expenses serving a bona fide business purpose are deductible, but typically are subject to the 50-percent limitation as provided in IRC Section 274(n). Meals with employees, clients, prospective clients and meals during business travel, usually fall into the 50 percent-deductibility category, but there are some exceptions that will allow the taxpayer to claim a 100 percent deduction:

• If the meal is provided on the employers’ premises to more than half of the employees for the employers convenience. An example would be a company cafeteria/dining room.

• Meal expenses for holiday parties or company picnics.

• Company-provided office snacks and beverages.

No deduction is allowed for the portion of any expense for meals that is considered “lavish or extravagant.” If a portion of an expense for a meal is disallowed because that portion is considered lavish or extravagant, the remainder of the expense is still subject to the 50 percent limitation.

Taxpayers should segregate their business expenses into the aforementioned sub-accounts to ensure they are minimizing after-tax costs. For additional details on tax-deductible meals and entertainment expenditures, see Taking Another Tax Bite Out of Meal and Entertainment Expenses.

Conclusion

By simply implementing policies that better document and account for certain expenditures, taxpayers can maximize their tax deductions while improving their bottom line.

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

The increase reflects an apparent reversal of thinking at IRS. As late as last month, during a conference call to the payroll industry, an IRS spokesperson said IRS had no current plans to boost the mileage rate.

The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. ( Rev Proc 2010-51, 2010-51 IRB 883) IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an automobile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. ( Rev Proc 2010-51, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e) (1) are met.

A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. ( Rev Proc 2010-51 ) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation. ( Code Sec. 170 (i))

The revised standard mileage rates in Ann. 2011-40 (55.5¢ for business; 23.5¢ for medical or moving expenses) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2011, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2011, and (2) for transportation expenses paid or incurred by the employee on or after July 1, 2011.

However, the standard mileage rates in Notice 2010-88, 2010-51 IRB 882 (51¢ for business; 19¢ for medical or moving expenses), continue to apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes before July 1, 2011, and to mileage allowances paid: (1) to an employee before July 1, 2011, or (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2011. All other provisions of Notice 2010-88 remain in effect. (Ann. 2011-41)

IRS Tax Tip 2011-06, January 10, 2011

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

Here are a few points to keep in mind when choosing someone else to prepare your return:

Check the person’s qualifications. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics. New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.

Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.

If you have a business, your business may pay club dues to one or several types of organizations. These dues may or may not be deductible, depending on the type of organization and its purpose.

Your business generally cannot deduct dues paid to a club organized for business, pleasure, recreation or other social purposes. This disallowance rule takes in country clubs, golf clubs, business luncheon clubs, athletic clubs, and even airline and hotel clubs. However, you can deduct 50% of the cost of otherwise allowable business entertainment at a club, even if the dues you pay to the club are nondeductible. For example, if you have dinner with a client at your country club after a substantial and bona fide business discussion, 50% of the cost of the dinner is deductible as a business expense.

The club-dues disallowance rule generally doesn’t affect dues paid to professional organizations including bar associations and medical associations, or civic or public-service-type organizations, such as the Lions, Kiwanis or Rotary clubs. The dues paid to local business leagues, chambers of commerce and boards of trade also aren’t affected. However, an organization isn’t exempt from the disallowance rule if its principal purpose is to provide entertainment facilities to its members, or to conduct entertainment activities for them.

Finally, keep in mind that even if the general club-dues disallowance rule doesn’t apply, there’s no deduction for dues unless you can show that the amount you pay is an ordinary and necessary business expense.