33.14 Types of Deductible Work-Related Costs

If you improve your job or professional skills by attending continuing education or refresher classes, advanced academic courses, or vocational training, you may be able to treat your expenses as a business expense deduction. As a self-employed business owner or professional, allowable expenses are deductible on Schedule C and reduce income subject to self-employment tax (45.1) as well as income tax liability. However, as an employee, the tax benefit of an unreimbursed educational expense deduction is limited because the expenses are miscellaneous itemized deductions, which, together with any other miscellaneous expenses, are deductible on Schedule A only to the extent that the total exceeds 2% of your adjusted gross income; see 19.1.

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Deducting Unreimbursed Employee Educational Costs
Unreimbursed employee education costs, such as for travel, tuition, books, fees, and meals, are deductible only if you claim itemized deductions. You generally must report your expenses on Form 2106 or in some cases Form 2106-EZ (19.3) before entering the deductible amount on Line 21 of Schedule A, where they and other miscellaneous itemized deductions are subject to the 2% AGI floor.
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Keep in mind that tuition and fees (but not transportation and usually not books or supplies) for work-related educational courses may also qualify for the Lifetime Learning credit (33.9) or the tuition and fees deduction (33.12). The Lifetime Learning credit, by reducing tax liability rather than taxable income, is more valuable than a deduction for education costs. However, you may be unable to claim the credit because your income exceeds the phaseout limit for the credit (33.9). The tuition and fees deduction is an above-the-line deduction available even if you claim itemized deductions. If you are an employee and are within the income range for the tuition and fees deduction (33.12), it is preferable to an itemized job expense on Schedule A that may be limited or eliminated by the 2% floor.

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Lifetime Learning Credit or Tuition and Fees Deduction
If you have qualifying work-related education costs, you should determine whether you can claim the Lifetime Learning credit (33.9). Also check to see if you are eligible for the above-the-line deduction for tuition and fees (33.12). These tax breaks may be more valuable to you than a business or job expense deduction.
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To deduct education costs on Schedule C (self-employed) or Schedule A (employee subject to the 2% AGI floor), you must show that the following conditions are met:

1. You are employed or self-employed;
2. You already meet the minimum requirements of your job, business, or profession;
3. The course maintains or improves your job or professional skills, or you are required by your employer or by law to take the course to keep your present salary or position; and
4. The course does not lead to qualification for a new profession or business. The cost of courses preparing you for a new profession is not deductible, even if you take them to improve your skills or to meet your employer’s requirements. This rule prevents the deduction of law school costs. Furthermore, the cost of a bar review course or CPA review course is not deductible because it leads to a new profession as an attorney or CPA. If courses lead to qualification for a new business or profession, no deduction is allowed even if you keep your current position.

If your courses meet the above requirements you may deduct the following education costs on Schedule C if self-employed or on Schedule A subject to the 2% AGI floor if the courses are related to your job:

1. Tuition, textbooks, fees, equipment, and other aids required by the courses.
2. Local transportation costs (33.16).
3. Travel to and from a school away from home, and lodging and 50% of meals while at school away from home (33.16). The IRS will not disallow traveling expenses to attend a school away from home or in a foreign country merely because you could have taken the course in a local school. But it may disallow your board and lodging and expenses at the school if your stay lasts longer than a year.

Further details of the deduction requirements are provided in 33.15.

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