Business travelers are about to lose millions of dollars' worth of tax deductions.
A little-publicized corner of the recent tax bill passed by Congress did away with deductions for club dues and abolished the tax break formally granted travelers who could prove that a spouse or other companion had a legitimate reason for going along on a business trip.
The changes take effect with the 1994 tax year.
"For '94, social club dues are simply not going to be allowed. The provision that allowed them at all has been repealed," said Nancy Anderson of H & R Block Inc.
"This applies to all kinds of clubs--meal clubs, athletic clubs, airline clubs and recreation clubs--any kind of professional club you can think of. That deduction is gone," she said.
Under current tax policy, if more than half a club member's use of a facility can be proven to be for business purposes, the percentage of the dues that represent business is deductible.
Airline clubs at airports, which often contain meeting rooms and other office facilities, have been popular places to conduct business on the road, as have networks of clubs. A spokesman for American Airlines, which charges $150 annually for use of its 41 Admiral's Clubs around the world, said it recently saw a sudden increase in people asking about buying lifetime memberships in the hope of writing off the dues once and for all in the current tax year.
A lifetime membership at an Admiral's Club costs $2,600--$4,100 if a spouse is included. A senior citizen lifetime membership is $700 for one, $900 per couple.
H & R Block's Anderson, however, is skeptical that such a deduction will fly with the Internal Revenue Service. In the past, she said, the IRS has ruled against deductions for advance payments if it "distorts income."
What if an employer elects to pay club dues?
That amount becomes taxable income beginning in 1994 and must be reported by the employee, according to Phillip Bosco of Arthur Andersen's Office of Federal Tax Services in Washington.
He said that aspect of the change will also apply in cases where employers elect to pay for a spouse to go along on a business trip even though the deduction for that has largely been eliminated.
The new law allows a deduction for air fare, meals and other expenses for a spouse or a companion on a business trip only if that person is also a regular employee of the person paying the expenses--and has a legitimate business role to play.