Tax Deduction for Work-Related Education - A Global Tax Blog Article from KLR

Global Tax Blog

Tax Deduction for Work-Related Education

posted Mar 14, 2017 by Steve Fay, CPA in the Global Tax Blog

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If you pursue higher education to improve your skills used in your current profession, there is a potential tax deduction of which you should take advantage.

When are deductions allowed?

Deductions are allowed under IRC Section 162, provided the tuition expenses meet the following conditions:

  1. The tuition meets the express requirements of the individual's employer (enforced as a condition necessary for the individual to remain employed,) OR
  2. The tuition improves/maintains the taxpayer's skills in his/her current employment or trade or business.

When are deductions not allowed?

Tuition deductions are not allowed if:

  1. The tuition is required in order to meet the minimum requirements of an existing position, OR
  2. The tuition prepares you for a new trade or business.

Kopaigora vs. Commissioner

Alex Kopaigora enrolled in the executive master of business administration program (EMBA) while working as senior assistant controller for the Marriot in Los Angeles.  His EMBA program was on weekends at BYU, in Utah!  Less than a year into the program, Kopaigora was terminated from his job.  Shortly after, he acquired his EMBA degree and was hired as vice president of finance at a small financing company.

Kopaigora claimed an $18,879 deduction for his EMBA degree expenses as unreimbursed employee expenses on Schedule A, Itemized Deductions, on his 2011 tax return.  This was challenged by the IRS.  The IRS argued that he did not carry on his trade/business through the 2011 tax year and therefore the EMBA degree was considered a “general degree” that did not maintain or improve specific skills required for his employment.

Long story short, the Court ended up approving his deduction, including his travel.  The reasoning was that he took courses despite his termination and that the education furthered his managerial and leadership skills.

What can we take away from this IRS court case?

As a result of this ruling, the deduction is allowed in cases where a taxpayer is engaged in a trade or business but is unemployed (provided he/she was previously involved in and actively sought to continue in that trade or business during his/her work-related education.)

So, what costs are deductible?

A taxpayer can deduct the work-related education costs for:

  • Tuition, books, supplies, lab fees, etc.
  • Certain transportation and travel costs, meals, and lodging while pursuing education away from home.
  • Costs of research and typing when writing a paper as part of an educational program.

But keep in mind, deductions for recreational activities while traveling are NOT permitted.

Getting extra schooling for your job is sometimes necessary, and being able to write off some of the expenses it takes to get to that next degree is always a plus.  But do take note of specific requirements under IRS tax code. Questions on available deductions?  Reach out to our Tax Services Team today.