Tax Write-Offs for Continuing Education Classes
The IRS generally allows a deduction for your work- or business-related expenses, like those for continuing education, depending on the nature and amount of the expense. The IRS establishes a specific formula for taking this deduction. There is also a tax credit available for certain qualifying education expenses. A tax credit is deducted directly from your tax obligation as opposed to a tax write-off which lowers your taxable income. The write-off for continuing education expense should be taken on either schedule A, if you don’t own a business, or schedule C if the expense is business related.
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Continuing Education for a Business
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The IRS has established certain guidelines for a business deduction for continuing education. If the continuing education is taken to improve your existing skills in a business, it is deductible as a miscellaneous business expense. However, if the continuing education is undergone to meet the minimum education for your trade of business, it is not deductible. For example, if a real estate broker is required to take certain hours of continued education to maintain a license, the expense is not deductible. If the expense qualifies as a business deduction, it should be taken on schedule C as an “other” business deduction.
Continuing Education for Your Work
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If your employer requires that you take continuing education, and you aren’t reimbursed for the expense, it may be deductible. The expense must also meet the criteria that the expense isn’t a minimum requirement in your trade or profession, such as a license requirement for continuing education. If the expense does qualify, it should be deducted on Schedule A — itemized deductions — on line 21. This total is then subject to a limitation based on 2 percent of your adjusted gross income. For example, if your adjusted gross income is $100,000, this floor would be $2,000. If your continuing education expenses were $3,000, you would be able to deduct $1,000.
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Education Tax Credits
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Certain education expenses may also be used to determine a tax credit as opposed to a tax write-off. Expenses up to $4,000 for each student can be used to determine this credit, which is taken on IRS form 8863. You claim your total education expense up to $4,000, subtract $2,000 from the total, and then take 25 percent, which becomes your tax credit. For example, if your expenses were $3,000, you would subtract $2,000 from this total and multiply this by 25 percent. This would be a tax credit of $250 and would be shown on line 49 of your individual tax return.
Considerations
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Consult with a tax professional before taking a deduction for education expenses or refer to IRS publication 535 (see reference 2). If possible, take a tax credit as opposed to a tax write-off, since the latter is limited by the 2 percent adjusted gross income limitation. Also, keep a copy of your canceled checks or payment records for the continuing education expenses, and a copy of the school-provider invoice or tuition request.
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