Employee education deductions

Article Provided By Levine, Katz, Nannis + Solomon, P.C., www.lknscpa.com

Deductions for costs of securing an M.B.A. may be easier to deduct, in light of a new Tax Court ruling. The IRS continues to argue that an M.B.A. degree qualifies the recipient for a new trade or business. That being the case, the degree recipient is barred from deducting the costs.

In the case of Daniel Allemeier, who obtained an M.B.A. from Pepperdine University while working at a dental services company, the Tax Court found that the “basic nature” of what Daniel was doing before and after receiving the degree did not change. Therefore, he was not changing his trade or business, nor was he meeting the threshold minimum requirements for employment in his field, but merely maintaining and improving his existing skills in his current position. These are the hallmarks of deductible education expenses. There was no word of the effect on Daniel’s Alternative Minimum Tax (AMT) liability, which was likely affected, since such expenses, when deductible, are claimed as Miscellaneous Itemized Deductions on Schedule A, subject to the 2% limitation, but are not deductible for AMT calculations.