How To Deduct Education Expenses?

If you’re self-employed and decide to further your education to benefit your business, you can write off your education expenses. To be eligible to claim the education expenses tax deduction, you must prove that the education:

  • Maintains or improves skills required in your trade or business
  • It is required by law or regulations, for keeping your license to practice, or job.

In other words, If you undergo a course or take classes to get certifications in your field or to enhance your business knowledge, you can typically write off those costs.

However, there are certain education expenses that you cannot deduct especially if your motive to pursue the course or program is to:

  • Meet the minimum requirements of your present trade or business
  • Qualify you for a new trade or business

This is true even if the education maintains or improves skills currently required in your business.

But if you happen to be eligible for the Education Expenses Tax Deduction, then you can deduct the costs of “qualifying work-related education,” which includes tuition, books, supplies, lab fees, transportation to and from classes, and anything else related to your education. It also covers other tax benefits, such as the American opportunity credit and the lifetime learning credit.

However, you can't claim this deduction as well as the tuition and fees deduction for the same expense, nor can you claim this deduction as well as an education credit for the same expense.

With the qualifying work-related education, you can also claim a student loan interest deduction.

  • Be working.
  • Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.
  • File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed.
  • Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, below.

Additionally, education expenses incurred during a temporary absence from your work may also be considered tax-deductible. However, after your temporary absence, you must return to the same field of work. Generally, absence from work for one year or less is considered temporary.

Any program or course you pursue to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education qualifies as work-related education if all three of the following requirements are met:

  • It is required for you to keep your present salary, status, or job.
  • The requirement serves the business purpose of your employer.
  • The education is not part of a program that will qualify you for a new trade or business.

Now, when it comes to you getting more education than your employer or the law requires, the additional education can be qualified work-related education only if it maintains or improves skills required in your present work.

Aside from the above-mentioned expenses, there are some other expenses that you can deduct:

Online web development course

As a freelancer, you may be required to prepare branding and marketing assets for a client. You may be required to acquire certain skills in order to add another skill set to your services. That’s considered work-related education and can lower the amount of taxes owed!

Real estate license renewal

In industries such as real estate, you may be required to get your license or certification periodically renewed. All fees related to the preparation for those renewals are tax-deductible.

These expenses can also be claimed as a tax deduction for educators.

However, there are certain expenses that you can’t deduct such as:

  • Traveling to gain experience to improve your skill or education. For example, a Japanese teacher who takes a trip to Japan to improve her knowledge of the Japanese language can’t deduct her travel expenses.
  • Vacation expense or annual leave you took to attend classes
  • Expenses for sports, games, hobbies or non-credit courses do not qualify for the education expense tax deduction for freelancers or tuition and fees deduction, except when the course or activity is part of the student’s degree program.

As a self-employed individual, you can deduct tuition and other educational costs of the self-employment income you report on Schedule C. Your deductions will not only lower the income subject to income tax, but also self-employment tax.

Here are the steps needed to deduct your tuition costs:

  • To deduct your education expenses, ensure that your education qualifies as a work-related expense.
  • To calculate your expenses, consider your travel costs and add them to the list of deductions. You can claim the costs of traveling, lodging, and some food expenses.
  • Reduce the number of your deductible expenses by any tax-free payments you received to pay for the costs. If you paid for tuition with some educational policy/benefits, that portion of your tuition will not be considered tax deductible.
  • Report all your total deductible expenses on Schedule C. Most of your educational bills shall fall under the "other expenses" section at the end of the form. Enter any transportation or meal deductions in Section II of the form.

Aside from the educational expenses, you can also seek a deduction for your student loan interest. Generally, any taxpayer who pays interest on student loans can take a tax deduction.

To calculate your student loan interest deduction, you need to file a Form 1040, 1040-SR, or 1040-NR, you can use the Student Loan Interest Deduction worksheet on page 94 of your tax return. If you file Form 2555 or 4563, you’ll use Worksheet 4.1 to calculate your student loan interest deduction. You can find that worksheet in IRS Publication 970, Tax Breaks for Education.

If the task of filing your taxes seems complicated, you can make use of any online income tax deduction calculator however, they may not provide you with the appropriate education-related deductions. Determining the exact freelance business expenses can be a difficult task, but, with an expense tracker like FlyFin, you can track all the education-related deductions as the A.I. will simply scan through your expenses and provide you with different categories of deductions that may apply to you.

FlyFin’s team of expert CPAs can help you uncover industry-specific tax deductions that you may not even be aware of. If you’re unsure about an expense, the CPAs can help guide you through it. The advanced income tax deduction calculator can help you maximize your savings.

FAQs

Q. Who can claim an education credit?

A. There are different requirements for each credit, but the common criteria comprises of the following:

  • You, your dependent, or a third party pays qualified education expenses for higher education.
  • An eligible student must be enrolled at an eligible educational institution.
  • The eligible student is yourself, your spouse, or a dependent you list on your tax return.

Q. Are room & board a part of the qualified educational expenses?

A. The cost of room and board qualifies only to the extent that it is not more than the greater of:

  • The allowance for room and board, as determined by the eligible educational institution, was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and the living arrangement of the student, or
  • The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Q. What are some examples of student loans that are eligible for the student loan interest deduction?

A. Some examples of college loans that are eligible for the student loan interest deduction include:

  • Subsidized Federal Stafford Loan
  • Unsubsidized Federal Stafford Loan
  • Federal Perkins Loan
  • Federal Grad PLUS Loan
  • Federal Parent PLUS Loan
  • Federal Consolidation Loan
  • State Education Loans
  • Private Student Loans

Q. Who is eligible to claim the student loan interest deduction?

A. Anyone who owes student loan debt can claim the deduction. However, in order to qualify, you must meet the following conditions:

  • You paid interest on a qualified student loan in the current tax year
  • You're legally obligated to pay interest on a qualified student loan
  • Your filing status isn't married filing separately
  • Your MAGI is less than a specified amount which is set annually
FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

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