Monday, September 5, 2016

Back To School: What You Need To Know About Taxes When Your Kids Play Sports

FROM FORBES. COM

Tonight is a skate night for my oldest daughter. She’s on a travel ice hockey team, and she also plays for an ice hockey team affiliated with her school. In between practices, she skates. That means we pay for a lot of ice time.

My other daughter plays hockey, too, but not on ice: she plays field hockey. She found out this week that she once again made travel team for field hockey as a goalkeeper. She was pretty excited, as was I until I had to write out the first check for the season.

And it doesn’t end there. My son is on a travel soccer team. Of the three kids, he is the one that has promised to turn professional and buy me a vacation house in whichever European city he plays for. So, yes, he does get extra snacks at practice.
But, all of this means that we are that family: the sports family. The thing is, we’re not even the worst of the lot. I have friends who have their kids in multiple sports all year round. It’s all we can do to manage one sport per kid. And it’s not just time, it’s money. In addition to chauffeuring the kiddos to practice and games, I am constantly paying up for tournament fees, ice time, equipment, jerseys (parenting tip: make your kids pick a number early on and stick to it year after year), sneakers, cleats, and skates. And if you play travel? Tournaments are typically overnight which can mean gas, meals, and hotels.

It’s a lot of money to put out. There has to be a tax break in all of these expenses, right? Something? Anything?
Sadly, no. Most expenses associated with after school and extracurricular sports are not tax deductible – even if the programs are affiliated with a school. That includes what you spend on instruction, equipment, accessories and uniforms.

But I did say “most” expenses – not all. There are a few exceptions to this rule.

1. The most obvious – and least common – exception is that expenses related to sports can be deductible if your child is engaged in the activity for profit. That changes the nature of the expense from a personal expense to a business expense. While your mind likely goes first to professional athletes who are paid by teams – the Cam Newtons and the Carli Lloyds of the world – “for profit” is more encompassing than that. If your child wins prize money (or equivalent, like Olympic medals) for participating in sports competitions, you can offset taxable income from those prizes by deducting the associated costs. How much you can claim as a deduction – and where to report the income and deductions – depends on whether you treat the sport as a business or a hobby; since most of us aren’t raising a little Simone Biles, it’s likely a hobby which means you’ll report winnings as “other income” on your federal form 1040 and take the deduction as a miscellaneous expense on Schedule A (you’ll find more on hobby loss rules here).

The same rules generally apply for children of all ages: it doesn’t matter if your child is in elementary school or in college. There is, however, a big caution flag when it comes to college athletes. Remember, to claim a deduction, you have to either show that you’re engaged in a trade or business OR that you’re engaged in a hobby where you occasionally earn money. If you file a tax return claiming that you’re engaged in a trade or business, or that you’re being paid to participate in sports, this might affect your eligibility under NCAA rules. Per the NCAA website:
An amateur, as defined by the NCAA, is someone who has not profited above his/her actual and necessary expenses or gained a competitive advantage in his/her sport.
The NCAA also says that amateurism does not allow for “[p]rize money above actual and necessary expenses.”
Sensing a pattern? Expenses cannot exceed prize money. That means no net deduction; however, if you’re required to report prize money, you may still be able to claim a corresponding deduction for out of pocket expenses. This is a tricky area. Be smart when accepting prizes or money or claiming deductions related to college sports. If you are not sure how it might affect your eligibility, the NCAA advises that you check with the athletic department (specifically, a compliance officer) for more details.
2. Another exception to the rule is childcare. While instructional fees are generally not deductible, if the activity is taking the place of other childcare, it might be. The cost of sending your child to an after school program may be a qualifying childcare expense, even if it focuses on a particular sport. As with summer camp, you’re not required to choose the cheapest childcare option to claim the expense so long as it otherwise qualifies. To qualify, care must have been provided for a qualifying person – that generally means your dependent child age 12 or younger when the care was provided – and the care must have been provided so you (and your spouse if you are married filing jointly) could work or look for work. The credit is non-refundable and can be up to 35% of your qualifying expenses, depending upon your adjusted gross income (AGI); for 2016, you can include expenses of up to $3,000 for one child or $6,000 for two or more children to figure the credit. If you receive benefits under a dependent care benefit plan (generally as a work perk), you’ll have to back that out of your qualifying expenses. Some exceptions and restrictions apply so be sure to read the fine print – or ask your tax professional for more information.

3. There’s one more potential tax break – a charitable deduction. One of the things that they don’t tell you when you sign your kid up for sports is that you’re really signing up for yourself, too. Inevitably, you’ll end up being a team parent, assistant coach, or at the very least, snack mom. While the value of your time spent volunteering is never deductible, out of pocket expenses relating to volunteering for qualifying charitable organizations are deductible. You would claim those expense on your Schedule A as a charitable deduction so long as you itemize. To qualify, expenses must be unreimbursed; directly connected with charitable services; expenses you had only because of the services you gave; and not personal, living, or family expenses.

Some examples of out of pocket expenses relating to providing services for a charitable organization include:
  • The cost of transportation. You can either deduct the actual costs of gas and maintenance related to your travel so that you can perform services or you can claim the standard mileage rate – which, sadly, remains at 14 cents per mile for charitable activities – to figure your contribution. No matter which method you use (mileage or actual), you can still deduct parking fees and tolls.
  • Travel expenses. You can also claim travel expenses while you are away from home, assuming that the expenses are related to the volunteer services and not for personal use – you can’t write off a trip to Europe to “coach” rugby just because you always wanted to go to Amsterdam. Travel expenses include air, rail, and bus transportation (as well as expenses for your car); taxi fares or other costs of transportation between the airport or station and your hotel; the cost of lodging and the cost of meals. Remember that these are travel expenses incurred as part of your charitable services and don’t include travel for the kiddos.
  • Uniforms and related accessories. While you can’t deduct the cost of uniforms for your children, if you buy uniforms or equipment as part of your charitable services, you can deduct those costs. Be aware, however, that to qualify as an expense, the uniforms or equipment must be worn only while volunteering and are otherwise not suitable for everyday use. For example, the cool sneakers and running capris that I used to wear when I coached Girls On The Run won’t count since I also could have worn them on my personal runs.
  • Remember to be smart. Attending ballgames to cheer your child doesn’t count as volunteering. Also not deductible? Sipping on coffee on the sidelines while chatting with other parents. Performing volunteer services for a sports team should meet the same standards as you would expect at any other charity: we’re talking real work.

    Always keep good records when you travel or otherwise spend money out of pocket – that means receipts and travel journals. Just as when you’re making in-kind or cash contributions, documentation is key for out of pocket charitable expenses claimed as deductions. You’ll also want to check to make sure that it’s a qualifying charitable organization. Most schools qualify and if you’re not sure about a specific team or organization, ask for a copy of the tax-exempt paperwork or search the IRS using the EO Select Check tool.