Deducting Graduate School Expenses When You’re Already Employed

Graduate students may deduct the costs of tuition and other fees under most circumstances. But what if an individual decides to go back to school after he or she has already entered the workforce, what, if any, tuition, costs, and fees are deductible?

Taxpayers may deduct the costs of qualifying work-related education as a business expense when the education leads to a degree, but only if at least one of the following two tests is met:

  • The education is required by an employer or by law to maintain present salary, status or employment. The required education must serve a bona fide business purpose of a taxpayer’s employer.
  • The education maintains or improves skills needed in the taxpayer’s present job.

However, it is not qualifying work-related education if it is needed to meet the minimum educational requirements of a worker’s present trade or business or is part of a program of study that will qualify the worker for a new trade or business.

The Income Tax Regulations provide that: “A, a self-employed individual practicing a profession other than law, for example, engineering, accounting, etc., attends law school at night and after completing his law school studies receives a bachelor of laws degree. The expenditures made by A in attending law school are nondeductible because this course of study qualifies him for a new trade or business.” Section 1.162-5(b)(1). Thus, if a law degree qualifies a law student for a new trade or business then the cost of the law degree is a nondeductible educational expense.

Typically, a taxpayer may be able to deduct any qualified education expenses paid during the year not only for herself but also for a spouse or dependent. These qualified expenses include tuition and fees and must be for higher education. This deduction may not be claimed if filing status is married filing separately or if another person may claim the individual as a dependent and therefore as an exemption.

If you are currently enrolled in college and have questions about education credits and deductions, call THE TAX EXPERTS at the Thorgood Law Firm For a FREE consultation, call 212-490-0704.Deducting Graduate School Expenses When You're Already Employed

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