May your organization advertise its membership dues as “tax deductible?” Individuals considering memberships often want to know whether dues may be deducted from their income as a charitable contribution. Many museums advertise the deductibility of their memberships. Other charities state that only contributions above and beyond the membership dues are tax-deductible. What about your organization? The following paragraphs provide guidance for determining whether an organization’s membership dues may be deducted.
Is the organization the right type?
First, determine whether contributions to the organization are generally deductible. Membership dues may not be deducted if they are for membership in an organization for which contributions are not deductible in general. Contributions to charities, religious organizations, educational institutions, and other organizations exempt under Internal Revenue Code, section 501(c)(3) are typically deductible. Contributions to fraternal organizations, country clubs, and other social clubs, on the other hand are not deductible. (See our recent article on the income tax exemption of such social clubs here). Thus, memberships in the local country club, for example, cannot be deducted as a charitable contribution.
What if you receive membership benefits?
Next, identify if and to what extent benefits are received in exchange for the membership dues provided. Payments for which an economic return benefit is received are generally not deductible. But what about benefits that are not as valuable as the dues paid? If benefits are received in exchange for a charitable contribution, the general rule is that only the portion of the contribution that is in excess of the benefit’s fair market value is deductible.
For example, if a member pays dues of $100 and in return receives a ticket to attend a play worth $30, then only the excess of $70 may be deducted as a charitable contribution. For individual contributions above $75 that are partially payment for benefits received, organizations typically must provide a disclosure with a good faith estimate of the benefit’s fair market value. In this way, members know how much of their contribution is deductible.
Are there exceptions?
Thankfully there are certain exceptions to this general rule that enable an organization to provide benefits to members without affecting the tax deductibility of the member’s contribution. These exceptions are as follows:
1) “Token” items provided in exchange for membership dues are excluded from consideration as an economic benefit. This includes such items as promotional coffee mugs, pens, or other souvenirs containing the organization’s logo. For 2014, the token item cost must be $10.40 or less, for a minimum $52 donation.
2) Also excluded are token items that are not provided in exchange for membership dues, but rather are offered to an individual for free to keep without an order, request, or express consent for the mailing from the member receiving the item. These token items can be excluded even though the recipient then becomes a member and pays a membership fee.
3) Return benefits with a value that does not exceed the lesser of 2% of the membership fee or $104 (for 2014) can also be excluded.
4) If a donor’s annual membership payment is $75 or less, the following benefits may also be excluded:
- free or discounted admission to the organization’s facilities or events,
- free or discounted parking,
- preferred access to goods or services,
- discounts on the purchase of goods and services, and
- admission to “members-only” events, if the organization reasonably projects that the cost per person is not more than $10.40.
What about charitable receipts?
Remember that various written substantiation requirements apply, depending on the amount and types of donations. For contributions of at least $75, the donee organization should provide a written receipt listing the amount of donation, the date received, whether any goods or services were received, and – if so – the donee’s good faith estimate of value provided. Providing such receipts will not only satisfy applicable IRS requirements, it also promotes positive donor relations! A knowledgeable tax attorney or accountant should be able to further advise regarding the deductibility of fees, dues, or contributions, particularly for the donor’s own tax reporting requirements.