Are you planning to sponsor a local sports team this year? Maybe you already are. Sponsorship usually involves the purchase of uniforms (the name of the exercise appears on it), rackets, balls and masks, and perhaps even a contribution to the fund that pays the referees. Brand awareness and notoriety is every entrepreneur`s dream. The more people see your ads, the more likely you are to attract your ideal customer. But how does team sponsorship affect your ability to make a tax deduction? In addition, in Section 1.513-4(b), the IRS provides certain exceptions for qualified sponsorship payments, which are as follows: For justification purposes, you must establish a clear link between your “advertising efforts” and your business. For example, if you own an insurance agency, you can sponsor helmets for the Little League team. In this sponsorship exchange, the team prints your company logo on this year`s helmet page. Parents who see their children playing in team sports will see your logo. Therefore, exposure to the logo could encourage them to shop with you for their insurance needs. This gives you good publicity. In fact, the local newspaper reports on the games. Can you deduct sponsorship fees for advertising? As you can see, what counts as tax-deductible sponsorship and what is considered advertising in the eyes of the IRS is separated by a very thin line. It`s a bit complex, I admit it too, but you have to know where to place your sponsorship for tax reasons.
In this article, I will help you do just that. When it comes time for taxes, it is always convenient to bypass the intermediary and use an exclusively online service, such as TaxSlayer or TurboTax. You don`t have to make appointments, meet with accountants, or pay accountant fees. However, once your taxes become more complex, which is the case if you have had a sponsorship, it becomes less advisable to control your taxes yourself. Example: Acme Dental Group advertised primarily through word of mouth or sports sponsorship. As part of the sports sponsorship, the practice paid for the uniforms, logo, hats, t-shirts, sweatpants, coats, bags and pants of all the players of their sponsored teams (football, softball, wrestling, etc.). Getting a tax deduction if your sponsorship counts as an eligible referral payment is great, but many sponsorship activities are taxable, also known as a portion of your business or organization`s income, would be subject to taxes. Whether referral activities are taxable usually depends on how you promote to a sponsor. If your sponsorship activities are taxable, what exactly is the tax you have to pay? It is known as unrelated corporate income tax or UBIT. As the IRS states on its UBIT page, “Unrelated business income is income from a business or business that is carried on regularly and is not materially related to the nonprofit, educational, or other organization that forms the basis of the organization`s exemption.” If you use a sponsorship instead of a charitable donation to the league, you can write off the costs as a business expense rather than as a charitable donation. If you work as a sole proprietor or partner, it means that the cost comes from your business income, which means you reduce your taxes on the self-employed as well as your income tax.
Charitable donations only reduce your income tax and are only available if you enter your deductions. Yes, you can get a deduction for sponsoring a nonprofit if you attract public attention through sponsorship. It would be an advertising effort for the company. You cannot accept the corporate sponsorship payment, as it depends on the number of event attendees you receive. You also can`t give preference to your sponsor. If they get a fancy reception or better tickets than what you sell to your audience, you`ll probably have to pay taxes. I hope this information has helped shed light on how your organization or business should handle sponsorship when tax time comes! If your referral is not considered an advertisement, but is a qualified referral payment under IRS rules, then yes, it`s probably tax deductible. When you apply for sponsorship, your organization or business may be required to pay independent corporate income tax or UBIT. The money you`ve raised at certain events may also require you to pay ubit.