Educational deduction

What is the name of your state? Minnesota

Not sure if this should go under "small business" or here.

I own a sole proprietorship freelance writing business. I'm currently in college working towards my BA in English (which supports the skills required for the job). Having the degree will help me get more clients in the future, but it is not REQUIRED by the clients that I already have.

Last year I deducted the cost of tuition (all of it, not just English classes) and my return was accepted by the IRS. Wondering now if I got lucky with that getting by, or if taking this deduction is indeed correct. Can anyone help?

beej said:

What is the name of your state? Minnesota

Not sure if this should go under "small business" or here.


I own a sole proprietorship freelance writing business. I'm currently in college working towards my BA in English (which supports the skills required for the job). Having the degree will help me get more clients in the future, but it is not REQUIRED by the clients that I already have.

Last year I deducted the cost of tuition (all of it, not just English classes) and my return was accepted by the IRS. Wondering now if I got lucky with that getting by, or if taking this deduction is indeed correct. Can anyone help?

Click to expand...

Actually, there are 4 different types of educational deductions and credits.

The schedule A educational deduction requires that the education be necessary for maintaining your current employment. If you took that one, you probably didn't meet the criteria.

However the above the line Tuition and fees deduction, or either the Hope or Lifetime educational credits are also available to you, and they do not carry those limitations, although the Hope and Lifetime credits have income limitations.

Those options might even produce a better financial result for you as well.

http://www.irs.gov/faqs/faq-kw53.html

Read the above and the pubs it links to.
The courses that enhance your current job are deductible. Other classes are not.

The fact that the IRS didn't complain about your deductions does NOT mean they approve of them the same way that just because I didn't get pulled over for doing 80 on the highway doesn't mean the police approve of that speed.

I was aware they may not approve; that's why I was asking. Didn't want to make the same mistake again!

Thanks for the IRS links; I must admit I'm still a little confused. Per Topic 513, it is deductible if it:
Maintains or improves skills required in your present job

I think the issue is whether or not I fall under the "required" category. How do you know what is "required"? As I said, I do have current clients who do not require me to have a BA; on the other hand, many jobs do say that a degree is required. So in order to go any further with the business, I could argue that the BA is required.

Also not quite understanding the class restriction, since all of the classes (even non-English-related ones) are required in order to earn the BA in English.

Tuition & fees deduction and Lifetime Learning credit are fine since you're in a degree program. Hope credit is OK if you meet the requirements. Schedule A is not allowed because you are not an employee.

Since at least some of the education is related to your current business and you're filing a Schedule C, you can write off the education costs for the classes that are demonstrably related to your business (including books & mileage) on Schedule C, thereby reducing both your income & self employment taxes. Depending on other factors such as EIC, this may or may not be a good idea. The remaining tuition could be taken as a T/F deduction or education credit.

thank you, Abezon! That makes sense.