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Millions of people donate to nonprofits to take advantage of IRS tax deduction policies. 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. As a nonprofit organization, you can help out your donors by being knowledgeable about relevant tax laws. Let’s explore the criteria for tax-deductible membership dues to discover if your nonprofit’s membership program qualifies.
Are membership dues tax deductible?
If a nonprofit membership program only provides benefits of negligible value, the dues likely will be tax deductible. Negligible value includes free or low-cost content and perks, such as receiving a members-only newsletter or getting a free t-shirt in the mail every year.
However, if you’re a member of an admissions-based nonprofit organization 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 supporters can deduct from their taxes. These include:
- Any dues that are required by a profession. This could include fees paid to a professional organization, trade association, or business league. To qualify for a tax deduction, the organization must be a political subdivision of a state.
- 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 non-negligible perks such as 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 organizations that don’t qualify for deductions. Expenditures can only be written off if the donation improves widespread social welfare, rather than benefitting 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
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 annually 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, nonprofits such as museums and philharmonic orchestras frequently offer memberships with expenses that exceed the cost of the benefits received.
Essentially, membership dues for charitable organizations are deductible as long as the contribution has a higher monetary value than the benefits given in exchange. If a charitable organization has several membership tiers at different price points, but each tier ultimately receives the same benefits, members in 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 a member’s charitable deduction by clearly disclosing the value of the benefits associated with each class or type of membership. The nonprofit 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
Membership dues can be a confusing part of filing 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, provide your supporters with relevant information about your membership program so they can easily check whether they qualify for a deduction. By doing so, your supporters can help fulfill a worthwhile purpose and get more out of their membership at the same time.