Can you deduct your MBA tuition when you file your income tax?
January is the month to start collecting W-2s and 1099s in preparation of filing your income tax. As you start thinking about your taxes, you might wonder if you can use the Internal Revenue Service’s Educational Tax Credit to offset the cost of your MBA degree. The answer is; it depends.
A few weeks ago, The U.S. Tax Court ruled that Adam Hart, an MBA graduate, owed over $2,500 in back taxes after he improperly deducted tuition expenses from his 2009 tax return. According to Businessweek.com, the deciding factor in this case was whether or not he was “carrying on a trade or business” before enrolling. Judge Kathleen Kerrigan ruled that his work history – he spent four months with one company and two months with another – wasn’t long enough to establish him in his field.
Yet back in 2010, a nurse deducted the educational expenses related to earning her MBA, was audited by the Internal Revenue Service (IRS), challenged the findings and won.
Lori Singleton-Clarke, a nurse working as the performance improvement coordinator, argued that an MBA degree would help her in the type of management positions she already held in the health-care industry. She told The Washington Post, “As a PI coordinator you have to be able to convey regulatory information to physicians in a quick manner. For physicians, particularly surgeons, their time is money. Sometimes they’re biased of, ‘You’re just a nurse.’ They don’t value, sometimes, the advice a nurse can give because they view us as someone that works underneath them. I wanted the degree so I could talk the talk with the physicians because physicians listen to financial stuff.”
Obviously, it’s confusing. Here’s an excerpt from the IRS publication 17:
Qualifying Work-Related Education
You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests.
· The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
· The education maintains or improves skills needed in your present work.
However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:
· Is needed to meet the minimum educational requirements of your present trade or business, or
· Is part of a program of study that will qualify you for a new trade or business.
You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.
If, after discussing this with your tax advisor, you think your MBA expenses meets the IRS guidelines, remember to keep meticulous notes. That documentation will be needed if you do end up being audited.