Lobbying expenses, alternatively referred to as “political expenses,” are expenditures made as part of an effort to influence politics. They include attempts to influence lawmakers, donations to candidates or campaigns, and money allocated toward political functions.
Political expenses aren’t considered to be tax-deductible business expenses. Private donors can’t deduct lobbying expenses come tax time, either.
What does this mean for a given political initiative? Here’s everything you need to know about lobbying expenses.
What Are Lobbying Expenses?
A lobbying expense is any “amount paid or incurred” in an attempt to “influence legislation.”
Anytime an entity, such as a political action committee (PAC), uses funds to shape politics, this expenditure is classified as a lobbying expense. Private entities, including business owners, can also incur lobbying expenses, as when they donate to a candidate’s reelection campaign.
Technically speaking, even meeting with a political candidate to share concerns can be considered a type of lobbying expense. However, from a regulatory perspective, political expenses typically have a direct monetary value tied to them.
According to the Internal Revenue Service (IRS), an expenditure is classified as a lobbying expense if it’s made while:
- Attempting to influence legislation
- Participating in any political campaign in opposition to or on behalf of an individual running for public office
- Attempting to sway public opinion on an election or political issue
- Communicating directly with an executive branch official in an effort to influence their actions
Any expenditure that meets the IRS definition of a lobbying expense is non-tax-deductible.
How Do These Expenses Work?
The IRS definition of lobbying expenses is meant to be restrictive and explicit. That’s because the federal government doesn’t want entities writing off political expenses as personal or business expenses. Any lobbying expense, including those outlined above, should generally be claimed on the donor’s taxes.
Due to the broad nature of the IRS’s definition, many auxiliary expenditures will fall under the umbrella of lobbying expenses.
For instance, conducting research that will be used to sway an elected official’s opinion on a political issue can be classified as a lobbying expense. Likewise, travel costs used to meet with and subsequently influence legislators can be considered a political expense.
The Lobbying Disclosure Act
Passed in 1995, the Lobbying Disclosure Act is the primary piece of legislation used to regulate lobbying expenses. According to the federal government, lobbying is lawful and ethical. However, the IRS doesn’t want lobbying expenses to serve as a tax loophole for donors.
Under the LDA, businesses must report lobbying expenses to the federal government on a quarterly basis.
The LDA also provides a limited list of activities that are tax deductible, even though they’re related to lobbying. For instance, businesses can write off money spent reviewing government affairs, complying with new legislation, or monitoring bills making their way through the legislative branch.
Knowing what can and can’t be deducted come tax time is key. Attempting to write off ineligible lobbying expenses can cause filing delays or penalties. Conversely, overlooking eligible deductions can cause an entity to pay too much in taxes, thereby diminishing liquidity and reducing profitability.
Lobbying vs. Other Political Expenses
Many lobbying expenses are clearly non-deductible, such as conducting a study and using the results of that research to sway a politician’s stance on a key issue. However, there’s a lot of gray area when it comes to miscellaneous political expenses, such as hosting events for candidates or paying for campaign dinners.
Generally speaking, any gift to a candidate is not tax deductible. Donations to political action committees aren’t usually tax-deductible, either. By contrast, charitable donations are often deductible, provided the entity doesn’t conduct lobbying activities that might have a direct impact on your industry.
Should My Organization Engage in Lobbying?
Absolutely. Lobbying is an effective tool in the U.S. political system. It’s also legal and closely regulated, meaning you can find clear guidance that defines when and how you can engage in the practice.
Lobbying gives your organization access to legislators. You can use this access to share your viewpoints on important issues and ensure that constituents have their voices heard.
Just as importantly, lobbying is a mechanism for providing funding and other resources to political candidates that care about the issues that are important to you.
Lobbying is also a powerful educational tool that allows you to bring candidates up to speed on pressing topics. Legislators are pulled in a thousand different directions during the course of any given day. Through lobbying, you can help them focus on the topics that matter most to voters, businesses, and other entities.
Navigate Lobbying Expense Complexities with Aristotle
Whether you’re running a political action committee (PAC), managing a campaign, or overseeing a nonprofit that’s attempting to influence state or federal politics, it’s vital that you familiarize yourself with lobbying expense regulations. Failing to do so could lead to civil penalties and draw negative attention to your benevolent organization.
When calculating and reporting lobbying expenses, it’s best to consult with an experienced tax professional. You should also consider taking advantage of PAC consulting services, such as those offered by Aristotle.
While Aristotle is best known as an award-winning provider of political data, we also offer consulting services to assist with the creation and management of PACs.
We can help you identify and capitalize on opportunities to impact the political arena through lobbying. Contact us today to schedule a demo of our platform or learn more about our consulting services.