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 the expenses related to the operation of the auto. 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.
A. 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.
B. If the lease was entered into prior to 2017, you can elect the standard mileage allowance for 2017 and all remaining years on that If the lease was entered into prior to 2017 and you did not make the election for standard mileage for 2016, it is too late. You must continue with the actual cost method.
- 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 use the car for hire (such as a taxi, Uber or Lyft).
- You cannot operate two 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 The rate for 2017 is 53.5 cents per mile. This is down 0.5 cents per mile from 2016. You can also deduct any business-related parking fees and tolls. Speeding and parking fines are not deductible.
If you use actual expenses, the business percentage of your total miles is multiplied times your actual expenses to determine the amount of deduction. Actual expenses include gas, oil, insurance, repairs, maintenance and lease payments. If you use actual expenses you may be entitled to deduct depreciation. There are special rules for depreciation so consult a knowledgeable tax professional.
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, which means if you pay someone to prepare your tax return then a portion of that fee could be a deduction against officiating income.
Travel — 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 where your regular place of business is located 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, 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 those expenses. Exhibit 8 details what elements are required for proper record-keeping of various types of 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 those items because of high abuse. The general rule is that meals and entertainment are personal in nature and not deductible. For those expenditures to be deductible, they must meet very stringent record-keeping requirements. That is, the meal or entertainment event must be directly preceded or followed by a business activity. Documentation of who is in attendance, what business topic was discussed, and when/ where the meal took place 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 for a business purpose are not required to pass the “directly related to a business activity” test. The fact you are away from home for business is sufficient to make those 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 or a subscription to Referee Magazine are examples of deductible dues and subscriptions. Booking fees are another example.
Uniforms — 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 shin guards, chest protectors or steel-toe shoes, would be deductible.
Supplies —Supplies necessary to carry out your officiating duties would also be deductible. Examples might be whistles, flags, penalty cards or a plate brush. Those supplies may vary by sport, but all sports require officials to have certain tools of the trade.
Home Office Expense — There is now a simpler option for computing the business use of your home. The simplified option can significantly reduce the recordkeeping burden by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses of the home office.
Taxpayers using the regular method instead of the optional method, must determine the actual expenses of their home office. Those expenses may include mortgage interest, insurance, utilities, repairs and depreciation. Generally, when using the regular method, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room exclusively for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
Regardless of the method chosen, there are two basic requirements for your home to qualify as a deduction:
- Regular and Exclusive Use
You must regularly use part of your home exclusively for conducting business. For example, if you use an extra room to run your business, you can take a home office deduction for that extra room.
- Principal Place of Your Business
You must show that you use your home as your principal place of business. If you conduct business at a location outside of your home (as all officials do), but also use your home substantially and regularly to conduct business, you may qualify for a home office deduction. For example, if you have a room solely for the purpose of storing uniforms, equipment, work desk and computer, even though you also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business. The structure does not have to be your principal place of business or the only place where you conduct business.
Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities.
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 is non-deductible even though the home office might be the only location of the business. Remember that Exhibit 6 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 if claiming the home office deduction.
Documentation — 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. The basic rule of the IRS is that if it is not documented then it did not happen.