- Types of Qualifying Educational Expenses
- Qualifying Educational Institutions
- Determining the Deductible Amount
- Documentation Requirements
Not everyone knows that continuing education can be tax deductible, but it can be! Here’s everything you need to know about how to make this work for you.
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The Internal Revenue Service (IRS) allows you to deduct certain expenses related to continuing education on your federal tax return. In order to qualify, the education must maintain or improve job skills. It also must be part of a degree program or toward meeting a requirement for licensing or certification in your field. The expense must be incurred in order to keep your present salary, status or job. Finally, the coursework cannot qualify you for a new trade or business.
Types of Qualifying Educational Expenses
The Internal Revenue Service (IRS) allows taxpayers to deduct certain educational expenses on their taxes. The deduction can be taken for both undergraduate and graduate level coursework. To qualify, the educational expense must maintain or improve job skills. The deduction can be taken for courses taken at a eligible educational institution.
Tuition and Fees
Tuition and fees required for enrollment or attendance at an eligible educational institution are qualifying expenses. This includes amounts paid for:
– required fees (including activity fees)
– course-related books, supplies, and equipment
Books, Supplies, and Equipment
You can deduct the cost of qualifying books, supplies, and equipment you buy as part of a course to maintain or improve your skills in your present trade or business. The books, supplies, and equipment must be primarily for and essential to the education. They can include:
-Books required for a course given by an educational institution as reading.
-Supplies needed for a course given by an educational institution. These are materials you use in following the curriculum and usually are destroyed in the process (such as drawing pads).
-Equipment needed for a course given by an educational institution if the equipment will be left at the educational institution when you finish the course.
Other Required Fees
In addition to tuition and fees, there are other required expenses that may qualify for the educational tax deduction. These include:
-Equipment (if required by the educational institution)
-Room and board (if enrolled in a degree program on at least a half-time basis)
Qualifying Educational Institutions
The American Opportunity Tax Credit (AOTC) is a tax credit available to eligible taxpayers who pay qualified education expenses for themselves, their spouses, or their dependent children. The AOTC can be claimed for up to $2,500 of qualified expenses paid per eligible student.
To be eligible, the taxpayer, spouse, or dependent must have been enrolled at least half-time in a program leading to a degree at an eligible educational institution for at least one academic period beginning in the tax year.
Qualifying educational institutions include accredited public, nonprofit, and private colleges, universities, vocational schools, and other postsecondary institutions. Religious instruction is generally not considered to be part of an eligible program of study.
Certain foreign colleges and universities also qualify if they are designated as “eligible” by the Department of Education. The credit is available for courses taken to acquire or improve job skills as well as for degree programs.
There are a few types of educational institutions that are not eligible for the tuition and fees deduction. These include:
-Family member tuition: You cannot deduct tuition or fees paid to a family member, even if they are a qualified instructor.
-Foreign institution: The tuition and fees deduction is only available for educational expenses paid to a U.S. institution.
-non-degree program: The deduction is only available for expenses related to programs that lead to a degree or credential at an eligible institution.
Determining the Deductible Amount
The cost of continuing education courses may be deducted as a business expense if the courses maintain or improve existing job skills. In order to deduct the expenses, you must itemize your deductions on Schedule A of your tax return. The cost of the courses, minus any reimbursement you received from your employer, can be included as part of your Miscellaneous Deductions, which are subject to the 2 percent limit of your adjusted gross income.
The Form 1098-T, Tuition Statement, is used by eligible educational institutions to report information about their students to the Internal Revenue Service (IRS). The form is used to help determine whether a taxpayer may claim a Hope or Lifetime Learning Credit. Taxpayers may receive Form 1098-T from more than one eligible educational institution. The form will include information such as:
-Amounts paid for qualified tuition and related expenses
-Any scholarships or grants received
-Whether the amounts reported are for academic periods beginning January 1 – March 31 of the following calendar year (Box 7) or some other period (Box 8)
The form will also include the student’s name, address, and taxpayer identification number (TIN), which can be either a social security number (SSN), an individual taxpayer identification number (ITIN), or an adoption taxpayer identification number (ATIN).
Canceled Checks or Receipts
To deduct continuing education expenses, you will need to keep canceled checks or receipts as documentation. You should also keep records of the dates of the education expenses and the name and address of the educational institution.
Statements from the Educational Institution
Educational institutions are required to provide documentation to the IRS to support their students’ tax deductions for continuing education courses. The institutions must provide the following information on their letterhead:
-The name, address, and employer identification number (EIN) of the educational institution
-The dates of attendance
-The number of hours spent in class
-A description of the coursework
While there are some exceptions, in general, you can deduct the costs of continuing education from your taxes. This includes tuition, fees, books, and other supplies that are required for your course of study. You may also be able to deduct travel and other expenses if you have to travel away from home to attend your classes.