Tag: accounting

A child’s and their parent’s sports expenses, from registration fees and travel to equipment and volunteer time, sit at the intersection of personal, medical, charitable and business tax rules. For tax minded parents the key is sorting each cost into the correct box, documenting it carefully, and understanding the limited circumstances when a deduction or credit is available. This article walks through the major categories: possible child care treatment, charitable contributions and volunteer out of pocket expenses, medical expense exceptions, and when a child’s sport activity can be treated as a business.

As a Child Care Expense:

The child and dependent care credit (and associated employer provided dependent care benefits) is aimed at expenses that enable a parent (or parents) to work or look for work. Eligible care is generally custodial care for a qualifying individual, most commonly a child under age 13.

• What Counts: Fees for day camps and similar custodial programs generally do qualify as dependent care expenses if the care is primarily custodial and not mainly educational. Day camps that provide supervision during work hours often meet the test. Overnight camps are not eligible.
• What Does Not Count: Tuition for lessons, private coaching, sports camps that are primarily instructional (i.e., teaching athletic skill rather than providing care), summer school and tutoring are treated as educational and therefore do not qualify. Likewise, kindergarten or private school tuition is not eligible.

If a program combines athletic instruction and custodial care, only the portion of the cost allocable to custodial care is eligible. This requires reasonable allocation and substantiation in the event of a tax audit.

Charitable Contributions:

Donations to youth sports nonprofits and quid pro quo payments:

• Cash donations: parents who make true gifts of money to a qualified 501(c)(3) youth sports organization can claim an itemized charitable deduction for the donated amount (subject to the usual AGI limits and substantiation rules). If the taxpayer receives a benefit in return — e.g., a ticket to a fundraiser or a uniform — only the amount that exceeds the fair market value of the benefit is deductible (a quid pro quo contribution).
• Payments to Participate: Fees paid to register a child for a nonprofit’s program are usually payments for services (considered program fees) rather than pure charitable gifts. If the registration is essentially a payment for admission or participation, it is not a deductible charitable contribution. Where a program has a subsidized “scholarship” option or a voluntary donation component, only bona fide voluntary gifts to the nonprofit qualify.
• Substantiation: Get the organization’s name, EIN, the amount, and contemporaneous written acknowledgement for any single donation of $250 or more. Document any benefits received and the fair market value estimate for non-cash donations.

Volunteering Parents: Unreimbursed Out of Pocket Expenses:

• Deductible Volunteer Expenses: While the value of donated time or services is not deductible, many out of pocket costs incurred while volunteering for a qualified charity are deductible as charitable contributions. Examples include:
  • Supplies and equipment purchased for the nonprofit (e.g., marking cones, field maintenance supplies) that you donate.
  • Uniforms required by the organization that are not suitable for everyday wear.
  • Travel costs incurred while performing volunteer duties (e.g., transporting equipment or players or traveling between sites). For automobile use, volunteers generally may deduct either actual out of pocket costs or charitable mileage rate set by Congress, which has been 14 cents per mile for many years. A mileage deduction isn’t allowed if the volunteer’s own child was among those being driven
  • Lodging and meals when the travel is away from home overnight for the charity (subject to the usual business vs personal tests and substantiation).
• What is Not Deductible: The fair rental value of allowing a charity to use your property (see next section), and the value of your time. The costs of items purchased specifically for use by your child participating in the activity (e.g., a baseball glove or uniform) aren’t deductible.
• Substantiation: Keep receipts, mileage logs showing date, purpose, miles driven and the charity’s name, and written acknowledgements for donated items.

Use of an Asset by a Charity: No deduction is allowed for mere use. Core rule: allowing a charity to use an asset you own (lending your field, permitting a nonprofit to use your boat, computer or home for activities) is not the same as donating the asset. The IRS generally disallows a charitable deduction for the value of the use of property.

• Donation vs. Use:
  • Deductible: If you transfer ownership of tangible property (e.g., you donate sports equipment, you convey the field or transfer title to an asset), the value of that contributed property may be deductible (subject to normal rules about basis, fair market value, and limits), provided you itemize your deductions rather than claiming the standard deduction.
  • Not deductible: If you simply let the nonprofit use your private tennis court for tournaments for a season but retain ownership and the right to reclaim use, you cannot deduct an imputed rental value or the “use” of the court.

Practical nuance: If you rent your property to a nonprofit at a below market rate, the difference between fair market rent and the amount charged could be considered a charitable contribution only in narrow circumstances and requires careful valuation and documentation; consult counsel.

Medical Expense Exception:

Prescribed activities for children with special needs may meet the definition of medical expenses that are primarily for the prevention or alleviation of a physical or mental disability or illness and may be deductible to the extent they exceed the floor (7.5% of adjusted gross income). The expense must be primarily medical in nature.

• Sports and therapy: In very specific cases a doctor’s prescription that a child undertake a particular physical activity (for example, therapeutic horseback riding, specialized swimming therapy, or adaptive sports training) may make related costs deductible as medical expenses. To meet the IRS standard:
  • There must be a written recommendation or prescription from a licensed medical professional stating the medical necessity.
  • The activity must be primarily for medical care or treatment, not merely general health or recreation.
  • Costs must be reasonable, ordinary for the treatment, and not reimbursed.
• High bar and examples: A physician prescribing therapeutic horseback riding for a child with cerebral palsy could support deductibility of fees and certain related costs (lessons, specialized equipment) if well documented; by contrast, ordinary travel to recreational soccer practice for a child with asthma would not meet the medical necessity threshold.
• Documentation: Keep the physician’s prescription, notes showing the medical condition and treatment plan, invoices, receipts and any program descriptions demonstrating the therapeutic nature of the activity.

When a Child’s Sport Becomes a Business:

Profit motive matters. If a child participates in a sport with a bona fide profit objective (e.g., competing for significant prize money, endorsement deals, or providing paid coaching services), the activity could be a trade or business. In which case:

Income (prize money, sponsorships, appearance fees, Name, Image, and Likeness (NIL) deals for college athletes) is taxable.

Related ordinary and necessary business expenses are deductible against that income if the activity is carried on for profit. If the activity is classified as a hobby, expenses are not deductible.

• Self Employment (SE) Tax: Net earnings from a child’s self employment (including independent contracting for sports appearances or coaching) are subject to self employment tax if above thresholds — remember this can create both income tax and SE tax obligations.
• Kiddie Tax and Earned Income: Wages and business income earned by a child are considered earned income and generally are not subject to the “Kiddie Tax” rules that apply to unearned investment income.
• NIL Income for College Athletes: Payments for name, image and likeness are taxable. Whether the compensation is treated as wages received as an employee or independent contractor income depends on the arrangement. College athletes receiving NIL payments should report them and keep records; some NIL arrangements generate self employment tax and the need to issue/receive 1099 forms.

Please contact the Leesburg or Warrenton office you if need assistance or would like to discuss your particular situation with a tax professional. Leesburg office 703-771-1818 or the Warrenton office 540-347-5681.