Sports Officiating Expenses
How to Determine Whether an Expense Might Be Tax Deductible
The sports official has many ways to spend earnings. Some of those expenditures are deductible and some are not. Generally, any items that are personal in nature are not deductible and items that have a business purpose are deductible. The tax law defines a trade or business expense as an amount that is ordinary and necessary to the business and paid during the tax year. Definitions of the components of this statement are:
“Ordinary” refers to an expense that is common and acceptable in the taxpayer’s type of business.
“Necessary” means it must be appropriate or helpful to the business. Deductible expenses must be both “ordinary and necessary.”
The term “trade” or “business” is generally defined as an activity undertaken with the expectation of making a profit.
Now look at what you can and cannot deduct. Remember, we are dealing in generalities. Everyone can have special circumstances that could apply. Consult your own tax advisor with questions that involve your individual circumstances. There might be something unusual that will allow the deduction.
Officials who claim deductions for expenses and are independent contractors will do so on a Schedule C of Form 1040. However, if your expenses are $2,500 or less and other qualifications are met, you may be able to file Schedule C-EZ of Form 1040.
Officials who are classified as employees who have deductible business expenses related to officiating are required to report these expenses on Form 2106, Employee Business Expenses. The deductions are deductible only to the extent that they exceed 2% of the individual’s adjusted gross income.
The following are some types of expenses that officials may incur:
Legal and Professional
Meals and Entertainment
Dues and Subscriptions
Home Office Expense
If you use your auto for officiating purposes, which most officials do, you may be able to deduct these expenses. Deductions can be computed using the standard mileage rate or actual expenses. Both methods rely on accurate documentation of the number of miles driven for business. Use of a basic auto log can simplify this record-keeping requirement.
The standard mileage rate can be used only when the following requirements are met:
You must own or lease the car. The election to use the standard mileage allowance for a leased vehicle must be elected in the first year of the lease and must be used for the entire term of your lease.
The election to use the standard rate must be made in the first year the car is available for use in your business and cannot be changed in later years.
You cannot operate five or more cars simultaneously. (Note: You can alternate between two vehicles and still use the standard mileage rate).
Your deduction is equal to your business miles times the standard rate.
The allowable rate for January-June of 2011 was 51 cents per mile and for July 2011 through December 2012 is 55.5 cents per mile.
You can also deduct any business-related parking fees and tolls.
If you use actual expenses, the business percentage of your total miles is multiplied times your actual expenses. Actual expenses include gas, oil, insurance, repairs, maintenance and lease payments. If you use actual expenses and you own your vehicle, you may be entitled to some depreciation.
What miles are deductible? Our Transportation Expense Chart shows clearly what can and cannot be deductible. Generally, only your mileage from your primary job (assuming officiating is a second job) to your game site, meeting location, etc., is deductible. If you leave from home to a game or meeting, that is not deductible unless you have a "home office." (See Home Office Expense, below).
Legal and Professional —
If you require any legal assistance connected to sports officiating and it falls under “ordinary and necessary,” it may be deductible. The IRS has issued a ruling allowing taxpayers to allocate a portion of their tax preparation fees to various tax-return schedules, including Schedule C.
— For tax purposes, travel expenses are the “ordinary and necessary” expenses of traveling away from your tax home for officiating. They include transportation, lodging, meals and incidentals. (See chart for details.)
What is your tax home? Generally, your tax home is your regular place of business regardless of where you maintain your family home. It includes the entire city or general area in which your primary place of employment is located. In simple language, what this means is that you generally would have to remain overnight in order to qualify for travel expenses beyond transportation expenses.
It is necessary to keep a record of all expenses you incur and any advances you receive. You can use a log, diary, notebook or any other written record to keep track of these expenses. See the Record-Keeping chart for more details.
Meals and Entertainment
— Meals and entertainment have a long history of debate in the tax law. Congress has continuously worked at minimizing the tax benefit for these items because of a perceived high abuse. The general rule is that meals and entertainment are personal in nature and not deductible. For these expenditures to be deductible, they must meet very stringent record-keeping requirements. That is, the meal or entertainment must be directly preceded or followed by a business activity and documentation of who, what, when, where and how much must be made at or close to the time the expense is incurred. Meals and entertainment for building general goodwill in your business is not a deductible expense.
Meals while away from home are not required to pass the “directly related to a business activity” test. The fact you are away from home is sufficient to make these meals deductible. All meals, whether for entertainment or while away from home, are subject to a 50% limitation.
Dues and Subscriptions —
Dues and subscriptions that are specific to carrying out the duties of your job are generally deductible. Professional or trade association dues like NASO’s are examples of deductible dues.
You can deduct the cost and upkeep of work clothes only if you must wear them as a condition of your employment and they are not suitable for everyday wear. If the shirt you wear for officiating has a patch or emblem on it, it would be considered a uniform. Additionally, items considered protective clothing, like shinguards, chest protectors or steel-toe shoes, would be deductible.
— Supplies necessary to carry out your officiating duties would also be deductible. Examples might be whistles, flags, clipboards or whiteboards. These supplies may vary by sport, but all sports require officials to have certain tools of the trade.
Home Office Expense
— The IRS will allow a home office deduction if there are administrative and/or management activities sufficient to qualitfy the home as a principal place of business and the home office must be used exclusively and on a regular basis for the administration or management activities of that trade or business and there is no fixed location of a trade or business where the individual conducts substantial administrative or management activities.
What that means is that the office in your home must be separate from all other rooms and cannot be used for any other purposes.
Care should be given if the use of a home office is for more than one business. In order for the taxpayer to qualify for the home office deduction, all business use of the home office must qualify for the deduction or none will satisfy the exclusive use test. This is most likely to happen when, as an employee, the home office is used for the employee’s business and that use is not for the convenience of the employer. Although not specifically defined in either the statute or regulations, “for the convenience of the employer” is generally understood to mean as a condition of employment.
After passing the tests to claim home office deductions, one must determine what expenses are deductible. Deductible home office expenses will be one of two types: directly related expenditures and indirectly related expenditures. Directly related home office expenditures are expenses of the home that relate only to the home office such as the cost of painting the home office, window treatments, etc. Those expenses are deductible subject to certain limitations.
Indirectly related expenditures are expenses that relate both to the personal portion of the home and the home office. Some examples of indirect expenses include rent, utilities, real estate taxes, home mortgage interest and homeowner’s insurance. Those indirect expenses must be allocated between the business and non-business use of the home. The method of allocation can be any reasonable method and is usually based on the square footage of the room used for business.
Unless a taxpayer qualified for the home office deduction, use of his auto from his home to the first job site within the metropolitan area is considered commuting and non-deductible though the home office might be the only location of the business. Remember that information in the travel expense chart is only applicable if you do not qualify for the office in the home deduction.
The law around the home office deduction is very complex and not a do-it-yourself project. It is highly recommended that you seek tax advice before you file your return.
Keep your receipts. They serve two purposes. First, they will aid you in preparing your tax return. Second, if your return is subjected to an audit, the receipts will help establish the validity of the expense.
Read About Income for Sports Officiating from a Tax Perspective.