Business Education Tax Breaks

Maybe you feel the need to brush up on your skills in your particular line of work. One option is to take a refresher course at a local college this summer. What makes it even more enticing? You may be able to deduct the cost as a business expense.

Make sure your class qualifies for a deduction

If you're an employee or self-employed and rack up some business education expenses (like refresher classes), the cost will qualify as an ordinary and necessary business expense only if it passes one of these two tests:

1. The education is required by your employer or by law to keep your current job.

2. The education maintains or improves skills needed in your present work.

However, you can't deduct any of your expenses — even if you meet either one of the two tests stated above — if the class is needed to meet the minimum educational requirements of your current position or it qualifies you for a new trade or business.

The IRS takes a notoriously tough stance on what constitutes a "new trade or business," and the courts usually back it up. For instance, deductions have often been denied in the past for nurses who take courses that might lead toward a career as a physician. Although, if you're merely studying new developments in your chosen field, you should be OK.

A new tax law snag

Previously, unreimbursed employee business expenses, including costs of business education, could be deducted as miscellaneous expenses on your personal tax return. Under new tax laws, deductions for miscellaneous expenses are suspended from 2018 through 2025. That means no write-off is available this year.

Luckily, you may be able to arrange for reimbursements from your employer. Reimbursement payments are generally tax-free to recipients and deductible by the employer. If an employer uses a formal educational assistance plan, they can take advantage of a tax exclusion of $5,250 per employee.

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