Job-Related Education Expense Deductions

Jan 29, 2016

Are you planning on taking a job-related class? If you are, you may be able to deduct your education expenses.

Basic Rules

Education expenses are deductible if the education:

  • Maintains or improves skills required in your business or employment, or
  • Meets the express requirements of either your employer or the law as a condition of retaining your salary, status, or employment.

CalculatorHowever, the rules can be tricky to apply. Educational costs will not be deductible if they are incurred to enter a field (as opposed to staying in one) or if they qualify you for a new trade or business. Therefore, an aspiring doctor may not deduct the costs of medical school, but he or she could potentially deduct the cost of courses necessary to maintain his or her medical skills.

In a recent case, an attorney who was admitted to practice law in Germany sought to deduct law school expenses he had incurred to enable him to practice in New York. The taxpayer argued that the expenses allowed him to maintain his general skills as a lawyer. The Tax Court disagreed, however, reasoning that the education qualified him to satisfy the New York entrance requirements and therefore enter a new trade or business.

Itemized Deduction

Education expenses must be claimed as a miscellaneous itemized deduction. They are deductible only to the extent that they – along with your other miscellaneous expenses – exceed 2% of your adjusted gross income.

Other Alternatives

Instead of taking this deduction, you may want to see if you’re eligible to claim a tax credit for a portion of qualified tuition and related expenses. The American Opportunity credit is limited to undergraduate courses, but the Lifetime Learning credit may be claimed for most post-high-school education at eligible education institutions.

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