Adult students who attend Community Business College may be eligible for tax deductions for the expenses they incur while attending school. Questions come up as to how the expenses that come getting training can be used at tax time. The most common questions are: Who is eligible for work-related tax deductions? Which expenses can be taken as deductions? What do I need to take a deduction if I’m eligible?
So here’s what the folks at the Internal Revenue Service say about educational expenses. (By the way, this information is specifically for work-related education expenses. For full-time academic students at eligible institutions, see this webpage: http://www.irs.gov/publications/p970/ch06.html).
You may be able to deduct work-related educational expenses paid during the fiscal year as itemized deductions on IRS Form 1040, Schedule A, Itemized Deductions.
Which Expenses Are Eligible?
In order to be deductible, your expenses must be for education that either:
(1) maintains or improves your job skills or
(1) maintains or improves your job skills or
(2) that your employer or a law requires to keep your salary, status or job.
However, even if the education meets either of these two tests, the education cannot be part of a program that will qualify you for a new trade or business or training that you need to meet the minimal educational requirements of your trade or business.
Are There Exceptions?
Although the education must relate to your present line of work, educational expenses incurred during temporary absence from your job may be deductible. After your temporary absence, you must return to the same kind of work. Usually, absence from work for one year or less is considered temporary.
Expenses that you can deduct under this category include:
- Tuition, books, supplies, lab fees, and similar items that support your education
- Certain transportation and travel costs, and
- Other educational expenses, such as the cost of research and typing
If you are an employee when you incur these expenses, you generally must complete Form 2106 , Employee Business Expenses, or Form 2106-EZ , Unreimbursed Employee Business Expenses. Deduct these educational expenses as miscellaneous itemized deductions on Form 1040, Schedule A ; they are subject to the 2% of adjusted gross income limit. For information on the 2% limit, refer to Publication 529, Miscellaneous Deductions, and/or Form 1040, Schedule A Instructions .
Remember, any expenses paid by an employer on your behalf are not tax deductible on your tax forms.
What If You’re Self-Employed?
Self-employed individuals include educational expenses on Form 1040, Schedule C , Profit or Loss From Business, Form 1040, Schedule C-EZ, Net Profit From Business, or Form 1040, Schedule F, Profit or Loss From Farming.
Keep in mind that if you are not self-employed, your employer may report the educational assistance payments on your Form W-2, Wage and Tax Statement, in the appropriate box under "other." In this case, taxable reimbursements will be reported by your employer as income to you in the appropriate box of Form W-2. Consult a tax professional for more advice on how to manage your deductions.
What’s the Key For Deductions?
The three most important things to remember if you’re taking deductions are: 1) document everything; 2) document everything; and 3) document everything. Documentation is very important to the IRS and can help you in justifying any deductions you take. If you are eligible for mileage deductions, print a Google maps page that shows the miles you travel. Keep all your receipts for your expenses together and don’t be afraid to take pictures. Take a snapshot that shows other class members with the same books and materials you purchased. If you are going to claim clothing, take a photo of your clothes before you started training and the ones you got for attending school. The two photos should show that you needed to meet dress code requirements.
Need More Information?
For more information on educational expenses, education tax credits or information for specific types of employees, such as performing artists, refer to Publication 970, Tax Benefits for Education.
Updated information on this process is available at: Topic 513 - Educational Expenses at the IRS website at http://www.irs.gov/taxtopics/tc513.html.
Get the full details of which expenses are deductible here at this IRS page (this also includes the most current mileage rates for the purposes of deductions) - http://www.irs.gov/publications/p970/ch12.html.
Learn how to track expenses in an accounting class or QuickBooks class at one of the Community Business College online courses at or take a class at the Modesto college campus.