The rules for business education deductions are as follows:
- You must already work in the business the education relates.¹
- You must have already met the minimum educational requirements for the work.²
If your education meets the above requirements, the rules let you deduct almost all of your related expenses, including³
- Tuition, books, supplies, lab fees, and similar items
- Certain transportation and travel costs; and
- Other educational expenses, such as the cost of research for papers.
If you are an independent contractor or a sole proprietor, you report your qualifying business education expenses on Schedule C which reduces your self-employment, federal and state income taxes.
If your business operates as a corporation, making you an employee, the business can directly pay or reimburse you for the costs. The corporation takes the deduction, and you receive the free education.
Another way to take business education expenses is as Start-up Costs.
If you take business related course(s) after starting your business, you can claim your education costs as a “start-up” expense. Start-up expenses are costs related to the investigation, purchase, or creation of a new business that would qualify as deductible expenses if you incurred them for an existing business in the same field.4 You can elect to deduct up to $5,000 of start-up costs in the year your business begins, reduced (but not below zero) by the amount by which the costs exceed $50,000. You then deduct the remainder of your start-up costs using straight-line amortization over the 15-year period beginning the month your business starts.5
If you close your business before the start-up costs are fully amortized, you deduct any unamortized start-up expenses as an ordinary loss.6
If you would like to learn more about this tax strategy, please call Susan at 847.895.9880.
¹ Reisinger v Commr. 71 T.C. 568; Reg. Section 1.162-5(b)(3)
² Reg. Section 1.162-5(b)(2)
³ Ibid, p. 71
4 IRC Section 195(c)
6 IRC Sections 195(b)(2); 165(c)(1)