The recent tax reform has changed the way you can handle Charity Golf Outings. The tax reform did away with business tax deductions for prospect and client golf.
Did you know that Charity golf is gone too? Buried in the recent tax reform is the elimination of the 100 percent business deduction for charity golf and other special charitable sporting events.
Let’s look at an example of this, let’s say you are planning on going with three clients to a charity golf event that is put on by a school, church or another registered 501(c)(3) organization such as the Red Cross or a cancer society. Or it could even be the Walk The Walk Charity Golf Tournament on April 21, 2018 in Broomfield, CO. You purchase a package of four tickets that costs $1,000.
The event was considered a business event not subject to the business entertainment tax deduction (50 percent cut). Further, the deduction is not considered a charitable contribution for tax purposes, and thus you did not have to reduce your deduction under the charitable rules. As of January 1, 2018, this stopped.
The New Rules for 2018
Let’s say you didn’t know about this new rule, and you paid to go on this outing using your business checking account. Here is what’s going to happen. For you to claim any tax benefit on this large expenditure, you have to deduct the money spent under the charitable contribution rules. There are two things that are going to make you upset and possibly very mad.
- For you to qualify for the deduction, the charity has to give you a receipt that shows how much the charity realized from your $1,000 after deduction its cost for your group’s green fees, party bag, food, drink, and prizes. For this example, the charity’s costs were $700 and it realized $300.
- Depending on your business structure that paid the $1,000, you likely have to write a check or make some accounting entries for the $300 tax deduction.
You paid the full amount from your business checking account, but your charitable tax deduction is now worth $300 on your personal tax return and you cannot claim it on your Schedule C.
There are a few different ways you can get this right in your books The best way to do this is to write a personal check to reimburse your business for the $1000. This will eliminate the $1000 expense your business incurred.
Then in the folder where you put all your tax documents including your 1099s, put the receipt from the charity into here to substantiate your $300 deduction. It is also important to make sure you put a photo copy of the check your business made to the charity, the form your business submitted to the charity for your group and the canceled check from your personal account to show that you reimbursed your company.
Your S corporation can handle the $300 charitable contribution on the K-1 and the $700 nondeductible amount as a book-to-tax reconciliation item. Generally, you already deal with reconciling the differences between your books and nondeductible items and all those other items that travel to your K-1.
On the other hand, you could reimburse the S-Corp and deal with the charitable contribution on your personal return, as the proprietor did.
Your partnership can also handle the $300 charitable contribution and the $700 nondeductible amounts on the K-1. The nondeductible amounts will show up as adjustments. Or you could also reimburse the partnership for this outing.
Your C Corporation can deduct the $300 charitable contribution on line 19 of its Form 1120, subject to a 120 percent of modified taxable income limitation. The nondeductible $700 is a Schedule M-1 book-to-tax adjustment.
Take note that the money paid to the charity was not your money; it was the C Corporation’s money.
Chances are you are not going to feel good about spending $1,000 to get a $300 tax deduction. And you can bet that you won’t be alone, there are going to be a lot of unhappy business owners in the same boat.
When you look at the business deduction for the $1,000, you were not looking for any creative ways to increase your deduction. The charity had no need to see whether it could create a bigger tax deduction for you.
Now you and the charity are going to have to look at things differently. We don’t know what creative strategies will emerge and we certainly do not know whether they will stand the tests imposed by the IRS and the courts. But we know that there will be strategies.
For example, most golf outings have package advertising opportunities that include golfer registrations. You may pay $1,200 for an advertising sign on the fourth tee that also entitles you to a group for the golf event. This raises a lot of issues, such as:
- What is the value of the advertising? Is it $400? $800? $1,200?
- If the golfers are included, how do you separate the value of the advertising from the cost of the golfers?
In other words, regardless of your business structure, you’ll not get the full deduction for your business. Depending on your structure, you may be able to have an adjustment of some sort on your tax form or tax schedule, while the proprietor should reimburse the company and then take the deduction on his or her personal taxes. It may be a pain and make you want to cry, but do try to remember why you choose to go to the event in the first place. You wanted 2 things a deduction and to help a charity.
On a good note, maybe in years to come we will see actions intended to create bigger business deductions for charity golf, skeet shoots, fishing tournaments, as well as a other similar events.
At this point in time, many of us are wondering why lawmakers did away with business-friendly charity golf. The killing of charity sporting events was planned. To remove this from the tax code, the lawmakers had to remove two specific tax code sections that were put in place in the Tax Reform Act of 1986 to specifically authorize 100 percent deductions for special sporting events that benefited charity.
In time, we will all find out how this is going to play out. Will Charities suffer? It’s too early to tell. We know that it is going to make businesses suffer. Remember, there are lots of ways to give back to the community and still get your tax deductions. If this method no longer suits you and your business because of the new Tax Reform, then look into some other ways you can give back to our community. Take the time to talk to your Accountant, he or she will be able to point you in the right direction to get your deductions.