Can Cutting Your Handicap Reduce Your Taxes?
What you need to know about golf and the new tax law
The Tax Cuts and Jobs Act whacked a 6-iron across the knees of everyone who has ever done business on a golf course and claimed the round as a tax deduction. Along with orchestra seats at the theater and corporate boxes at the ballpark, golf is now considered 100 percent entertainment and zero percent deductible.
But all loopholes are not lost for executive golfers who want to take employees, clients or prospective new hires out to the course. We turned to John Monahan, Tax Partner at Moss Adams, for the rundown. He says he plays golf “very sporadically and very badly,” but, no worries, he’s pretty good at corporate tax compliance.
ColoradoBiz: I own a software company that bought a golf club membership for corporate use. I conduct a significant amount of business at the course, including company meetings and luncheons, wooing clients over golf and networking through golf. What part of this can be deducted by my business?
JM: You have to parcel this one out, because there are elements of it that are deductible. Any charge for the meetings that you have with your employees at the facility – that would be 100 percent deductible. The luncheons themselves would fall under the 50 percent allowance for meals. And any meals separately stated on the bill, separately paid for, that you’re entertaining clients with – that would be 50 percent deductible. But the green fees themselves would be back to the entertainment portion, 100 percent disallowed.
CB: My new boss expects me to play golf with clients and leads, but I’m not very good at the game. I need lessons, equipment and clothes. What part of this can be deducted on my taxes?
JM: Those types of costs are considered personal and would be considered not deductible. It’s like you’re expected to wear a suit in some businesses: That’s your cost.
CB: I rate courses for a golf magazine, and I like to preview a course I’m rating over a round of golf with my husband. What part of the green fees is deductible? What about the mileage to and from the course? Suppose I need to stay in a hotel?
JM: This is different. Because you’re in the business of rating golf courses and you’re conducting business on the golf course, your portion – not the husband’s – would be 100 percent deductible. And I would say the travel costs and mileage would be 100 percent deductible as far as hotel stays, as long as there’s no incremental increase because your husband is staying with you.
CB: I frequently play in charity golf tournaments, even the occasional charity pro-am before PGA Tour events. My dream is to snag an invitation to play in the AT&T Pebble Beach Pro-Am, which I’ve heard costs as much as $25,000. What portion of these entry fees is deductible? What about my travel expenses from Denver to Monterey?
JM: With the new tax reform act, that’s more considered a charitable deduction rather than an entertainment expense. The deduction would be what the charity is actually receiving, assuming it’s a qualified charity, over and above what you’re receiving yourself in goods and services. So if I pay a fee, an entrance fee, and I pay over and above what the fair market value is for me to play golf and goods and services, that excess would be a charitable contribution.
As for the out-of-pocket travel expenses, those can only be claimed if there was no significant element of personal recreation. In this case it sounds like there would be, and I would say it would not be deductible. I mean you’re playing golf. There’s a significant element of recreation.
CB: My company is rewarding our top four sales reps with a golf trip to Bandon Dunes. We don’t want them to work, just have a good time and come back energized for another great year of sales volume. Isn’t this a business expense for us?
JM: It is a business expense. And the reason is that it’s going to be taxable income to these employees as a taxable fringe benefit and it would be subject to FICA. Because it’s compensation, the company could deduct it as salary or compensation expense, fully. And the employees are taxed unless it’s de minimus, and this would not be de minimus because that’s a very low threshold. (Note: De minimus fringe benefits, according to the IRS, include things like occasional snacks, holiday gifts and personal use of cell phones provided by the company.)
CB: I’m the President of the United States, and I own 16 golf courses and three under construction. I frequently host business guests for golf, and none of us pays a green fee. I assume there’s nothing we have to report to the IRS.
JM: Yes, I believe that would be correct.