Tag Archives: back-to-school

Going Back to College? How to Deduct Tuition Costs

Can you deduct the cost of going back to a school to get ahead in your career? It depends.

The tax law is clear on this issue whether you’re returning to school full-time or just enrolling in a summer refresher course. To qualify for deductions, you must meet one of these two requirements.

  1. The education is required by your employer or the law to keep your present job or present work status. In other words, the education must serve a legitimate business interest.
  1. The education maintains or improves skills needed in your present job.

That seems easy enough, but you’re not done quite yet. Even if you meet one of the two requirements, you still flunk out if either:

  • The education is needed to meet the minimum educational requirements of your present trade or business.
  • The education is part of as study program that will qualify you for a new trade or business.

This is where things often become blurry. If you take courses that could ultimately lead to an advanced degree, like an MBA or law or medical degree, the IRS could say that the studies qualify you for a new trade or business, even if you don’t intend to switch your field. Not surprisingly, this issue is often contested in the courts. Despite a handful of isolated incidents, the IRS usually prevails.

Assuming that the coursework doesn’t qualify you for a new trade or business – expenses such as tuition, books, laptops, lab fees, supplies and similar items; costs of writing, researching and preparing term papers; and some limited travel and transportation expenses may be deductible.

Even if you qualify, however, business education expenses are deducted as miscellaneous expenses subject to the usual threshold of 2% of adjusted gross income (AGI). If you don’t clear this 2%-of-AGI floor, none of the expenses are deductible on your tax return.

These are hard lessons for many taxpayers to learn. When possible, other alternatives such as using an employer-sponsored educational assistance plan may be preferable. Under such a plan, an employer can provide up to $5,250 of tax-free educational benefits to each employee.

Tips to Make School Expenses Deductible

It seems like summer has just begun and the Back-to-School advertising blitz has already started. Are there any tax savings opportunities? Certainly, if you are tax smart about your spending. While the amounts may be small, they can add up in a hurry. Here are some ideas:

Purchasing the class supply list could have deductions in it – Often schools send a list of requested supplies for the school year. Some of the items on the list are clearly for personal use (such as an eraser or a ruler) while other items on the list are often for school use and classroom use (such as 24 pencils or paper towels). This classroom supply technique effectively transfers the school expenses to our children. Keep track of these non-cash classroom/school donations for possible non-cash charitable deductions.

Donate funds versus buying the supplies – Instead of buying the classroom supplies yourself, consider providing a check written to the school as a donation. This helps in two ways: First, it becomes a clear cash donation with a canceled check as a receipt. Second, if your school has a good supply agreement, the purchasing power of your donation will go further.

Whenever you donate, get a written confirmation from the school or your child’s teacher representing the school – Most teachers do not have the form, so bring one with you that the teacher can sign. You can get the directions on www.irs.gov or simply use a respected charitable group like Goodwill, or the Red Cross for a format to copy.

Leverage the school’s PTA – This non-profit parent group, if a qualified charitable organization, is a great resource to help your school AND help you get deductible donations for funds you would otherwise provide to your child’s school.

Use checks not cash – If you usually provide donations to the school in the form of cash (like providing additional money to help other kids go on field trips) make those donations in the form of a check. Cash donations without receipts are not deductible.

Donate funds versus taking the raffle ticket – Raffles, subscription drives, and silent auctions are fun ways schools raise funds. To maximize your ability to deduct your donations, forego the possible prize. Then the entire donation is clearly deductible.

Don’t forget your out-of-pocket expenses for your volunteer activities – Perhaps you donate your time at school functions, donate books to the school library, or help assist the teaching staff. Your out-of-pocket expenses and your mileage should be tracked for charitable deduction purposes.

Teachers, save your out-of-pocket expenses – The $250 deduction for qualified educators’ out-of-pocket classroom expenses is a popular tax provision in Congress that is now a permanent part of the tax code.

Finally, don’t forget to review state rules for educational expenses. There are often credits available for out-of-pocket school and other educational expenses.