BENEFITS

Training and Education Tax Deduction

If you take classes or training courses to further your professional education you may be eligible to deduct your tuition, related course materials and certain travel costs. There are a number requirements you must meet to be able to deduct your education expenses (see our diagram), however, the most important points for sole proprietors to take note of are that your training and education cannot qualify you for a different trade or business, they cannot be for the purpose of meeting minimum educational requirements, and they must maintain or improve the skills required in your field. Sole proprietors can deduct qualifying education expenses on their Schedule C or E. Employees may be eligible to deduct unreimbursed training and education expenses on their Schedule A, subject to the 2% limit.

PROFESSIONAL SERVICES

Caroline has a bookkeeping and accounting business, however, she wants to be able to advise her clients on legal matters as well. Caroline decided to enroll in law courses at a local college and take the BAR exam. Since Caroline is a good accountant, she knew before she started her law endeavor that her education expenses would not be deductible on her Schedule C because the courses would qualify her for a new trade or business (law).

REAL ESTATE AGENT

Apollo is a self employed real estate agent who has been in the business for over 20 years. The state requires him to complete 20 hours of continuing education courses every 12 months to maintain his license. Last year he spent $350 to meet his CPE requirements. Since he already had met the minimum educational requirements of his profession (original license), the course he took was to maintain and improve his real estate skills and it did not qualify him for a new trade or business, the full $350 would be deductible on line 27a of his Schedule C.

AUTHOR / SPEAKER

Sarah Gomez has a masters in english and has been a freelance writer for the past 6 years. Her articles and books are targeted towards a younger demographic so she regularly participates in training courses to stay current on how to communicate with young readers. She spends approximately $1,900 every year on these courses, all of which would be deductible on her Schedule C since these courses improve the skills required in her business.

PROFESSIONAL SERVICES

Paul has been a law clerk for five years and wants to start his own practice. He quits his job, studies for, and passes the BAR, which cost him approximately $5,000 after test fees and prep classes. At the end of the year Paul has his business up and running, however, his accountant advises him not to deduct the $5,000 of training and education expenses on his Schedule C since those costs were incurred so Paul could meet the minimum educational requirements for his business.

AIRBNB HOST

Virginia has a day job but regularly rents her house out on Airbnb and absolutely loves it. Last fall she decided to enroll in a $300 hospitality class at her local community college so she could refine her hosting skills. Since the class is not a minimum requirement of her "profession" (rental activities) and it will improve her trade knowledge, the $300 course would be generally be deductible on line 19 of her Schedule E.

HOW TO TAKE THE EDUCATION TAX CREDIT

To be eligible for this deduction your education may not be for the purpose of meeting a minimum requirement or qualifying you for a different trade or business, however, it must serve a business purpose and improve or maintain your skills.
You can not take this deduction if the education and training you took was to help you return to your business or profession.
In addition to the cost of tuition, deductible educational expenses may include transportation, meals and lodging (subject to business travel rules), and certain administrative fees, to name a few. If you are deducting your transportation costs for a temporary / short-term course (less than one year) you may deduct travel from your home. If you are participating in a long-term course you may only be able to deduct your transportation costs between work and school.
If you are receiving a grant, tax-free scholarship or any other tax benefit related to your qualifying education you generally cannot deduct your educational costs.
If you are an employee and your employer does not reimburse you for qualifying education expenses (similar to requirements for self employed individual) you may be able to deduct unreimbursed training costs on line 21 of your Schedule A (if you itemize), subject to the 2% of AGI limit (i.e. certain miscellaneous itemized deductions cannot exceed 2% of your adjusted gross income).

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IRS FORMS

Schedule E

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