Yet deductions must relate to employment
If you repair televisions, radios and other electronics, and take a special course in radio and stereo service; or you quit your biology research job to become a biology grad student full time for a year, and return to work in biology research after completing your studies, you can qualify for an education-related tax deduction.
Educational expenses can only be written off by the individual or employer if the education is required by the company or by law to keep your present salary, status or job, according to tax professionals. The education, if required, must serve a bona fide business purpose of the employer. The expense also qualifies as a write-off if the education maintains or improves skills needed in the present job.
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Even if an expense meets both of those tests, however, it does not qualify as work-related education if it is needed to meet minimum educational requirements of your present trade or business, or if it’s a part of a program of study that will qualify the individual for a new trade, company or job.
Another example of an education-related expense that can be deducted is if you are a teacher who has satisfied the minimum requirements for teaching. The employer requires you to take an additional college course each year to keep your teaching job. According to the IRS, if the courses will not qualify you for a new trade or business, they qualify as work-related education, even if you eventually receive a master’s degree and an increase in salary because of the additional education.
“Such expenses cannot be required to meet the minimum requirements of a taxpayer’s trade or business, nor can they be part of a program of study leading to the qualification of the taxpayer in a new trade or business,” said Michael J. Chazan, partner with Adler Pollock & Sheehan PC in Providence. “In addition, the education must maintain or improve skills required in the individual’s employment or other trade or business, or the education meets the express requirements of the individual’s employer.”
Individuals who are enrolled in some education that qualifies as a write-off under the aforementioned rules can receive as much as a $4,000 deduction from their taxes, up from $3,000 in 2003, depending on their income, according to Pat Thompson, the tax partner with the law firm of Piccerelli Gilstein & Co. in Providence. If a single person’s income is less than $65,000, or less than a combined income of $130,000 if the person is filing with a spouse, the most he or she can deduct for the costs of their education expenses is $4,000, she said. If a person’s income is above that, in order for there to be any deduction, the cost of the education would have to be at least 2 percent of annual income. For example, if an executive earns $85,000 annually, and is taking a course for his or her position, the cost of that course would have to be $1,700 to qualify as a deduction.
But according to Thompson, the work-related education deduction does not occur often.
“It’s not that common,” she said. “When you’re talking about executives, most of them have already gotten all of their training. If they go to conferences, usually the company pays for it.”
People who own their own businesses as well as companies can also apply for this deduction, but their education costs must fall under the same qualifiers.
“Generally, you are better off as self-employed and deducting these of Schedule C of the 1040 than as an employee, deducting them on Schedule A of the 1040 and subject to some other strict limits (like the 2 percent income restriction),” Chazan said.
Companies have no dollar limit on the amount of deductions they can claim for work-related education for their employees, according to Chazan, and there are “countless cases on the issue of ordinary and necessary business expenses” in terms of education.
An additional benefit for a company is that they can provide education for their employees up to $5,250 per person per year and the employee doesn’t have to report it on his or her taxes, and the company gets the deduction, Thompson said, called the Employee Assistance Program.
Some instances where a person would not qualify for a deduction include:
– You are a full-time engineering student. Although you have not received your degree or certification, you work part time as an engineer at a firm that will employ you as a full-time engineer once you finish college.
Although your engineering courses improve your skills in your present job, they are needed to meet the minimum requirements for a full-time engineer.
– You have a bachelor’s degree and you work as a temporary instructor at a university. At the same time, you take graduate courses toward an advanced degree. The rules of the university state that you can become a faculty member only with a graduate degree. You can keep your present job only as long as you show good progress toward this degree. You have not met the minimum educational requirements to qualify you as a faculty member, so therefore, the courses are not work-related education. (IRS)
