This is the fourth part of our multi-part series of blogs on tax benefits for education. Any present or former student should utilize the knowledge, experience and expertise of the tax professionals at the Thorgood Law Firm to ensure that they take advantage all the credits and deductions that the law allows for students of higher education.
Tax credits, deductions and savings plans offer taxpayers ways to reduce their expenses for higher education.
- A tax credit may reduce the amount of potential income tax.
- A deduction reduces the amount of income that is subject to tax, thus reducing the amount of tax paid.
- Certain qualifying savings plans may either allow accumulated earnings to grow tax-free until money is distributed, allow the distribution itself to be tax-free, or both.
- An exclusion from income eliminates income tax on a particular benefit, while eliminating the possibility that such benefit may qualify as a credit or deduction.
Business Deduction for Work-Related Education
Employees that itemize deductions may claim a deduction for the expenses paid for work-related education. This deduction equals the amount of qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of adjusted gross income. If self-employed, expenses for qualifying work-related education may be deducted directly from self-employment income, thereby reducing the amount of income subject to income tax and self-employment tax.
Work-related education expenses may also qualify taxpayers for other tax benefits (please see the other parts of this series). Remember that two deductions may not be claimed for the same expense, nor can a deduction and an education credit be claimed for the same expense.
To claim a business deduction for work-related education, a taxpayer must:
- Be employed and working.
- Itemize deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.
- File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if self-employed.
- Have expenses for education that is required by an employer or the law to keep a present salary, status or job. The required education must serve a bona fide business purpose of an employer while maintaining or improving skills needed in a taxpayer’s present work.
It must be noted that the education is not qualifying work-related education if it:
- Is needed to meet the minimum educational requirements of a present trade or business or
- Is part of a program of study that will qualify the taxpayer for a new trade or business.
If you are currently enrolled in college and have questions about education credits and deductions, or are repaying a student loan and have questions about interest deductions, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
