Published on February 24th, 2023
Reading Time: 5 minutes
eRank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.
This information applies to crafters in the United States of America (USA). However, crafters in other countries might find this information useful.
What are Dues and Subscriptions?
As with all aspects of business, the definition of dues and subscriptions has changed over the years. With the movement from in-person, in-hand business transactions to more online, remote business dealings, an evolution has occurred for these tax deductions.
Over the past several years, the Internal Revenue Service (IRS) redefined which dues and subscriptions may be classified as valid tax deductible business expenses. Thus, it is important for handmade businesses to understand the expenses that are allowed classification under the heading “Dues and Subscriptions” in today’s accounting terms.
Definition of Dues and Subscriptions
Per Dictionary.com, dues are “charges, as for membership of a club or organization.” The same site defines a subscription as “the right to receive a periodical for a sum paid, usually for an agreed number of issues,” as well as “the right to receive a service or access text online for a certain period of time.”
The IRS further defines dues and subscriptions as being “ordinary and necessary” expenses for your specific business as well as the main purpose of the expense being business-related and not for entertainment purposes.
Dues
Prior to 2018, dues for any club or organization during which or at which you conducted business was deductible as a business expense. The IRS, though, changed this with the Tax Cut and Jobs Act, eliminating the majority of deductions related to primarily entertainment purposes.
Dues for professional and civic organizations, though, remain valid business tax deductions as long as the main purpose is for business and not to provide entertainment for members. Specific trade associations such as bar associations, medical associations, or real estate boards are examples of valid membership dues that are allowable business deductions. Dues paid for membership in your local Chamber of Commerce, Rotary Club, or Lions Club are also allowed. For a handmade crafting business, membership in a crafters’ guild is a valid tax deductible expense.
Because the term “dues” often evokes images of country, golf, and luncheon clubs, businesses are encouraged to use the term “fees” on financials and tax returns in place of “dues.” For example, your annual “dues” paid to your local Chamber of Commerce should instead be listed as “membership fees.”
Resource Subscriptions
Previously, subscriptions referred to recurring payments for a physical magazine or newspaper, delivered in-person or through the mail. Today, handmade businesses still have this type of recurring expense but perhaps for an online magazine or blog or other resource instead of a paper in-hand periodical. As in years past, these subscriptions are a valid tax deductible expense, as long as the subscription is specifically related to your business.
A handmade crafting business might subscribe to Crochet World, Quick & Easy Quilts, or Woodworker’s Journal. The cost incurred by subscribing to any of these is a valid business expense for a handmade business. A subscription to In-Fisherman, however, would not be a valid expense unless, of course, your handmade business is crafting custom fishing lures.
Software Subscriptions
Much of today’s business software is distributed under a Software-as-a-Service or SaaS model, which involves a recurring expense similar to resource subscriptions. In order to be 100% tax deductible, the software must be a product that is considered “ordinary and necessary” for your handmade business as well as be used primarily for business purposes.
Examples of SaaS software subscriptions used by handmade and POD (print on demand) businesses with Etsy shops are eRank, Printify Premium, or PlaceIt. These examples are all used primarily for business and are therefore tax deductible business expenses.
If you have a SaaS subscription for a software product that is used for both personal and business purposes, the deductible amount is the percentage of the total expense that the software is used for business. A definite rule does not exist regarding the percentage amount. However, be ready to support your percentage claim, if ever required.
Other Subscriptions
You may have other subscriptions beyond resource and software subscriptions. Examples might be YouTube Premium or Netflix. For most handmade businesses, these subscriptions often prove difficult to support a 100% tax deduction of the recurring expense.
You may watch YouTube videos related to your business, but do you or other members of your family watch other YouTube videos and take advantage of the features of YouTube Premium? What about Netflix? You may watch documentaries on the history of basket weaving on Netflix to use in your social media posts for your basket handmade business, but how does that time for the viewing of those documentaries compare to the time of overall viewing of Netflix by you and your family?
Conclusion
At first glance, it may not seem as if a handmade business has many tax deductions beyond supplies and materials. However, it is important to look at all aspects of your business. Think about everything you use to either learn about, improve, or conduct your handmade business. This specifically refers to any recurring dues and subscriptions that you pay.
As always, keep all receipts and document your expenses in detail to be able to explain the expense, if necessary. This includes recurring dues and subscription expenses. If in doubt about a deductible expense, it is best to discuss specific dues and subscriptions questions with your personal accountant.
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Michelle Badger, Accountant (25 + years) and Etsy seller
