Millions of people donate to nonprofits to take advantage of the IRS’ tax deductions policy. However, there are several gray areas surrounding which gifts are considered tax deductible.
For instance, many individuals wonder if they can claim their membership dues on their taxes. Here are some of the questions you may have about membership dues:
- Are membership dues tax deductible?
- What membership dues are tax deductible?
- Are there exceptions?
Let’s explore the criteria for receiving a tax deduction for your membership dues to discover if your membership qualifies.
Are membership dues tax deductible?
If your membership with a nonprofit organization only provides benefits of negligible value, the dues likely will be tax deductible.
However, if you’re a member at a nonprofit like a museum, it’s not tax deductible because you are being provided a service, as well as reduced fees and other perks. In general, if the nonprofit provides services of value as part of the membership program, your dues will not be tax deductible.
What membership dues are tax deductible?
There are several types of membership dues that members can deduct from their taxes. They include the following:
- Any dues that are required by your profession. This could include fees paid to a professional organization, trade associations, or business leagues. These organizations must be political subdivisions of a state to qualify for a tax deduction.
- Any amount that surpasses the value you receive from the organization. For example, if you pay a $100 membership to an orchestra and receive $40 concert tickets in return, the difference ($60) would be tax deductible.
These membership dues are tax deductible because the donation goes towards supporting public welfare and benefits more than the individual who made the contribution.
There are also numerous dues that are not tax deductible. For instance, the following organizations do not have tax-deductible membership dues:
- Fraternal organizations.
- Country clubs and other social organizations.
- Homeowners’ associations.
- Alumni associations (if you get tickets to an athletic event in exchange).
- Recreational clubs.
- Labor unions.
- Political organizations.
- Foreign organizations other than Canadian, Israeli, or Mexican charitable organizations.
These dues can’t be deducted from taxes because they’re either contributions from which you benefit, or they’re contributions to nonqualified organizations. Expenditures can only be written off if the donation improves widespread social welfare instead of the individual.
Are there exceptions?
The IRS allows charities to exclude certain negligible benefits from their tax return to members. Examples of these benefits include:
- Free or discounted admission to the organization’s facilities or events.
- Parking passes.
- Discounts on purchases of goods and services, including goods or services offered by retailers working with the organization.
In general, when benefits consist of admission to events open only to members of the organization, the organization’s cost per person must be less than $7.60, adjusted yearly for inflation, for the benefit to be considered negligible.
The IRS also provides criteria for determining when membership payments above $75 per year may be considered charitable contributions. For example, organizations such as museums and philharmonic orchestras frequently offer memberships that are far more costly than the benefits received.
Essentially, the ruling concludes that membership dues for charitable organizations are deductible as long as the contribution has a higher monetary value than the benefits given in exchange. For example, if a charitable organization has several membership tiers at different price points but each tier ultimately receives the same benefits, members who have a more expensive tier will be able to claim the extra they spend on their taxes.
For membership payments above $75, the organization may be able to safeguard the member’s charitable deduction by clearly disclosing the value of the benefits associated with each class or type of membership. The charity can do this by defining the benefits on its membership information page so that prospective members know how much they can claim.
The bottom line
Ultimately, membership dues can be a confusing part of filing your taxes with the IRS. However, a good rule of thumb is that membership dues will be deductible if:
- Their value exceeds what the member is getting back from the nonprofit.
- The dues are paid to a valid organization.
With that in mind, you should always check with your membership program to see if you qualify for a deduction before filing your taxes. By doing so, you can get the most value out of your membership while supporting a good cause.