There is a great benefit available to employees who would like to pursue an MBA or other graduate degree for the purpose of improving their abilities and performance at work. It’s possible that you can deduct the costs of going back to school to lower your tax bill.
However, it’s not as easy as it may sound for anyone who’s been to graduate school to get this deduction. The IRS and the courts have gone back and forth over this issue for years because of different scenarios that have challenged the rules.
So, if you – or one of your employees – are trying to determine how this law applies to your situation, you’ll have to consider facts about the history or your employment before, during, and after your schooling. This includes any breaks in employment or your education during the time period.
And while it can be complex, there are only three requirements that you should meet to determine whether or not you should pursue the benefit of this deduction:
- The purpose of the education is not to meet the minimum requirements necessary for your employment
- The education is not part of a program of study that will lead to you qualifying for a new trade or business; and
- The education must either:
- Maintain or improve the skills required by your employer, trade, or business
- Meet the requirements of either your employer or the applicable law
The bottom line with this rule is that you must have already started the employment, trade, or business before determining that further education was necessary. And, you most have gone to school with the intent of maintaining this course of employment or furthering your career within the company.
If this is a situation that concerns either you or one of your employees – it would be worth it for you to seek more clarity relative to your particular circumstance. When you speak to your CPA, he may consider relevant court cases that will help you to know for sure if this deduction is for you.