Do Not Overlook Education as a Good Business Decision

The IRS provides several publications and rulings related to education of business owners and employees and the deductibility of expenses for that education. A broad overview is found in IRS Topic No. 513i. It begins with the statement that you may be able to deduct the cost of expenses in the year paid if you are a:

  • Self-employed individual
  • Qualified performing artist
  • Fee-based state or local government official, or
  • Disabled individual with impairment-related education expenses

Those items set out your status for eligibility for education expense deductibility, but you have a great deal of detail about how to determine whether a specific expense item is deductibleii. Highlights of this document include:

  • Who Must Pay – Qualified business expenses must be paid by:
    • you or your spouse if you file a joint return
    • a student you claim as a dependent
    • a third party that can include relatives or friends
  • Funds that you can use – You can deduct education expenses paid with cash, check, credit/debit card, or money from a loan.

Of course, there are more details in the IRS rules, so if there is any doubt about deductibility or how you paid, discuss with your tax professional.

What type of expenses qualify and do not qualify for deductibility?

Generally, you can deduct expenses for tuition, fees, and other related expense for an eligible student at an eligible education institution. Student activity fees are also deductible if required for attendance.

Courses that improve your qualifications for or ability to perform your work duties are normally deductible expenses. Also, any courses or costs incurred to obtain required certifications or licensing for your job or business are deductible.

What you cannot normally include in deductible expenses for education include room and board, insurance, medical expenses, and transportation. You also normally cannot deduct expenses for sports, games, or hobbies.

If you have employees, there are business benefits other than tax breaks in providing them with continuing educationiii.

If employee acquisition and retention are important to you, the results of a recent survey of millennial employees are interesting. 87% of millennials say professional development is important in a job.

Even as far back as a survey in 2017, 72% of employers stated that they offered onsite professional development training and education. Even though this article began as an expense deductibility discussion, there are significant benefits in offering education and onsite skills improvement resources to employees.

Even if budget is a challenge, technology can fill a void. Some employers are building extensive knowledge bases of information. With the Internet and the use of a company intranet, an employer can create topic and skills-based online resources accessible only to authorized employees when they have the time and access.

Everything considered, almost any business can offer skills improvement or job-related training to employees. It is good for business, and expense deductibility makes it a smart tax strategy.

i IRS Tax Topic No. 513, Work Related Education Expenses, IRS.gov

ii Qualified Education Expenses, IRS.gov

iii How to Keep Employees Engaged with Continuing Education, Forbes.com

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