Are education expenses tax deductible?
The professional world moves fast, so professionals need to improve to keep up constantly. You may find that the learning doesn’t end when you find a job, but rather that’s when it starts. Everyone wants an edge to get work done faster and better than their competition. We do this through continued education via classes, books, seminars, and more.
If you pay for professional development related to your career, your expenses may be tax deductible.
This article will discuss the three things you need to know about professional development tax deductions.
- What qualifies as a deductible educational expense
- Who gets to clean them (we’ll cover W-2 and self-employed professionals)
- How the IRS expects you to report them
What constitutes a deductible educational expense?
If you want the TL;DR, you must know the condition your expenses must meet to be deductible.
- Maintains or improves skills needed in your present work or
- Your employer or the law requires you to keep your current salary, status, or job.
For example, if you design websites as a W-2 employee for a marketing agency. A website design course to improve your skills would qualify as a deductible professional development expense.
Here’s a starter list of deductible professional development expenses:
Type Of Expenses
Type of Education
Note: Travel as a form of education is not a deductible expense. You are generally allowed to deduct travel expenses like general business travel.
What training expenses are not tax deductible?
There are two instances where professional development expenses are not tax deductible.
- Training that the law requires for minimum education in a trade, business, or profession. The training must cover information that exceeds the basic requirements for entry into a position. For example, the required 7,200 hours of electrician instruction from a trade school to become a licensed journeyman electrician is not deductible as an education expense.
- Educational expenses that qualify you for a new career or are outside your current business, trade, or profession. For example, taking marketing classes to promote your law firm better may not qualify, even though it could certainly help your business.
Note: If you’re currently enrolled in school, your education may qualify for deductions other than the work-related education expense deduction.
Let’s jump back to our earlier example of the website designer (Todd) working for a marketing agency. He took a website design course to improve his design and technical understanding. Let’s say that Todd also takes a course on starting his own website design marketing agency. That would NOT qualify as a deductible expense.
These examples may seem confusing and highly subjective. If you’re uncertain, consult with a licensed tax professional.
Who can deduct educational expenses?
We understand there’s probably a wide demographic of people reading this article. Educational expense deductions don’t only apply to W-2 employees. According to the IRS, you may be able to deduct the cost of work-related educational expenses during the year if:
- A self-employed individual
- An Armed Forces reservist
- A qualified performing artist
- A fee-based state or local government official
- A disabled individual with impairment-related education expenses
Reporting educational expenses
As with all deductions and credits, it’s important to report your expenses properly to the IRS. This means backing them up with the right documentation, like receipts, invoices, and statements.
These individuals can include educational expenses on Schedule C (Form 1040). Schedule C-EZ (for self-employed individuals who also earn a salary as an employee) and Schedule F (for sole proprietor farmers) are also available.
Regardless of your self-employed filing status, you deduct your expenses directly from your self-employment income. This reduces your taxable income for income tax and self-employment tax.
Armed forces & fee-based government officials
Armed forces reservists and fee-based government officials figure the cost of qualifying work-related education expenses on Schedule 1 (Form 1040). Fee-based government officials are government workers who are compensated entirely or partly on a fee basis. Reservists include Army, Navy, Air Force, Marine Corps, Coast Guard, Army National Guard, and Public Health Service Reserve Corps.
Certain performing artists, like actors and singers, use the Schedule 1 form to report these expenses. They must (1) provide performance services for 2+ employers, (2) receive at least $200 in wages from each employer, (3) related business expenses are more than 10% of their gross income from the performance of those services, and (4) Had adjusted gross income of $16,000 or less before deducting these expenses.
Disabled individuals figure the expenses on Schedule A (Form 1040), Itemized Deductions, and attach Form 2106 to their return.
The passing of the Tax Cuts and Jobs Act (TCJA) on December 22, 2017, suspended the deduction for miscellaneous expenses like work-related education in tax years 2018 through 2025.
Note: Be careful reading tax advice articles dated pre-2018. Tax legislation changes back and forth, often causing confusion. This is certainly the case for the professional development tax deduction for employed individuals.
Who’s paying also matters
If you’re an employee who qualifies to write off educational expenses, you can only do so if you paid for the expense yourself. Your employer can pay up to $5,250 per year for you in professional development without it counting as income. This opportunity must be formally offered as a fringe benefit for the business to write off the expense.
The lifetime learning tax credit
If you choose to pursue professional development formally through an accredited institution, you may qualify for the lifetime learning tax credit. The lifetime learning credit (LLC) allows you to claim up to $2,000 for qualified education expenses yourself, your spouse, or a dependant. This credit applies to undergraduate, graduate, and vocational students. You can claim this credit if you’re modified adjusted gross income was less than $59,000 ($118,000 if you filed jointly) last year. If your MAGI was between $59,000 and $69,000 ($118,000 to $138,000 if you filed jointly), you could get a reduced credit.
Elevate your career or business
The business world moves fast, so qualifying workers and self-employed individuals should take advantage of every educational opportunity. The only problem is that sometimes highly sought-after knowledge comes at a price. Luckily, you can write off many of these expenses and receive a sizable deduction.
If you’re self-employed and/or operate a business, use a tool like ComplYant to help you keep track of taxes and secure important business documents relevant to your deductions and all things taxes.