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Taking an Itemized Deduction for a Master's Degree or Other Business Training/Education

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Taking an Itemized Deduction for a Master's Degree or Other Business Training/Education

Lori Singleton fought the IRS over her $14,000 business education deduction. She was able to win because she was able to show that the education helped her maintain or improve her job skills without qualifying her for a new job or promotion

Patrick O'Donnell, a CPA who works mostly with a tax attorney, could not win a business deduction for the educational cost of law school. He probably paid more than $14,000 for the law degree, and even though it certainly helped maintain or improve his skills as a CPA, he could not show that having a law degree wouldn't qualify him for a new job or promotion.

Here are some of the important rules to help you:

The Business Education Deduction Rule

We have condensed the truckload of rules into one basic business education deduction rule: You may deduct education that maintains or improves the skills you need in your business, providing the education does not qualify you for a new business.

To satisfy this requirement:

1. You must already be in the business for which you are seeking the education or the skills improvement.
2. The education must not be entry-level education necessary to qualify you for the business.
3. The need for the education can come from you or it may be imposed by an employer or by a change in law.

Business Skills

What skills do you need in your business? You might need any of the following:

• Business tax-planning skills
• Software skills
• Writing skills
• Selling skills
• Business planning skills
• Advertising skills
• Negotiating skills
• Computer skills

You might obtain the skills you need by going to tax-deductible seminars and conventions. You may need to hire a tax-deductible coach or tutor to help you get the skills you need.

Sometimes you need more exotic skills. Sometimes you need special skills, like learning how to play golf or fly an airplane. You might even need to learn how to speak Spanish.

Education Deductions Allowed for Spanish Lessons

The court allowed Deputy District Attorney Edward Kosmal to deduct his Spanish lessons because he worked in a community with many Spanish-speaking people. The court noted that the Spanish lessons enhanced Mr. Kosmal's ability to perform his job. With his newfound ability to speak Spanish, Mr. Kosmal was better able to interview witnesses and victims in his assigned cases.

Spanish lessons that would qualify you for a job, or make you a more attractive candidate for a job, are not deductible. You must already be in the business for which the Spanish lessons are an improvement in skills, as Mr. Kosmal was. If you meet this condition, you may hire a Spanish tutor or enroll in a class, and the cost is deductible.

Summary

Remember, if you follow our rules, getting your education deduction is pretty straightforward. You must

• establish yourself as being in business;
• then you may deduct all education that maintains or improves the skills you need in that business,
• providing that education does not qualify you for a new business.