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Deducting Education Costs From Your Business

  • September 2019 | by Abbott Pratt & Associates

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    Are education costs adding any type of value to your business? If so, they may be fully deductible and can lower tax bills.

    When deciding whether or not certain education costs are deductible to your business, there is generally a two-part test:

    1. Do the education expenses maintain or improve required skills for that business industry?
    2. Is the expense necessary for that profession?

    If the expense meets at least one part of the two-part test, then it is a qualified educational cost that can be deducted through a business. You may be eligible to additional deductions in relation to education costs regardless of whether you own a small business or are self-employed. The education costs must be legitimate and relate to the business’ industry, or the IRS can disallow them.

    Qualified education costs may require some judgement to ensure they are fully deductible and meet one of the requirements of the two-part test. One way to distinguish a qualified education deduction is if the law has certain requirements in order to obtain or maintain a license for a specific job. You cannot deduct the education expenses that are unrelated to the business or qualifies you for a new trade or profession. Some examples of education expenses that can be taken as a deduction include but are not limited to:

    • Continuing education/classes
    • Benefits to obtain or maintain professional licenses
    • Seminars/webinars
    • Textbooks, books, and other professional publications
    • Workshops
    • Supplies or equipment
    • Transportation to/from these qualified expenses

    Don’t forget about your staff as well. Offering education benefits to employees can benefit the company by more than just improving their skills, but by also giving the company a tax deduction. As always, it is important to keep records of all transactions and expenses in case the IRS chooses to question the legitimacy or accuracy of a deduction. Some employer-provided education benefits can be taxable to the employee. However, employers are allowed to offer their employees up $5,250 per year of tuition reimbursements and related education expenses that are tax deductible for the employer and considered a tax-free benefit to the employee. Any amount provided above and beyond the $5,250 in a given tax year is fully taxable to the employee.

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