December 11, 2017 | Posted in:

The ABCs of Business Education Tax Deductions

Alloy Silverstein’s Tax Tip of the Week

Now that the kids went back to school, you may have the itch to return to the classroom yourself, perhaps to brush up on certain skills in your field or expand your horizons. Can you deduct the cost of business education? Well, it depends.

IRS Requirements

Generally, you can deduct business expenses only if one of these two requirements is met:

  1. The education is required by your employer or is mandated by law.
  2. The education maintains or improves the skills needed in your present work.

Qualification Caveats

Though that sounds simple enough, there are also a couple things that can disqualify you for the deduction. First, if the education is required to meet the minimum educational requirements of your trade or business, then you are expected to pay that cost as a normal part of doing business — and without a tax break.

Second, if the education qualifies you for an entirely new trade or business, then you also don’t get to use the deduction. It’s this second caveat that often trips up taxpayers. For instance, if a nurse starts taking courses that will result in a degree as a physician, the courts have said that the education expenses can’t be deducted because it qualifies the nurse for a new line of work.

What is eligible for business education deductions?

Assuming you do qualify, you may deduct expenses like tuition, books, laboratory fees, equipment and transportation between work and school. Typically, the cost of the trip is deductible if you go straight to class after work. You can’t write off travel costs if you stop at home for a snack or to change into more comfortable clothes, however.

“Business education costs that you pay yourself are reported on Form 2106,” explains Ren Cicalese III, CPA, MST. You can also report any other unreimbursed business expenses that you paid for.”

When you pay business education costs out your own pocket, the expenses are deductible as miscellaneous expenses, subject to a floor of 2 percent of adjusted gross income (AGI). However, if your company reimburses you, payments are generally deductible in full by the company and tax-free to you.

“In the event of an audit, it is likely the IRS will ask for written verification that your employer does not provide reimbursement for these types of costs. If your employer reimburses you for the costs, you cannot take a deduction,” Ren adds.

Alternatively, an employer may establish an educational assistance plan (EAP) that provides up to $5,250 in annual tax-free benefits to each participant.

“Current law says that educational assistance programs provided by employers are tax free. However, this could change as a result of tax reform.” – Ren


Connect with an Alloy Silverstein CPA today to learn the latest benefits of business education.

© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.


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