Are Online Classes Tax Deductible?

Online courses are a practical alternative for people who want to improve their job skills. Colleges and universities are offering a growing number of courses in an online form, and even full-time students are enrolling. Although taking classes online may be slightly less expensive than attending a brick-and-mortar school, paying tuition that’s not covered by financial assistance or an employer can still be challenging. Luckily, there are some tax deductions and credits to help defray the cost.

The IRS Tuition and Fees Deduction that was allowed in 2017 will continue to be available for the 2018 tax year. Employees who take online classes to improve their job skills may be able to deduct tuition and related costs as unreimbursed employee expenses. Related costs include books, supplies, lab fees and other expenses related to the coursework. For online courses, the costs aside from tuition are usually minimal. The Tuition and Fees Deduction can reduce taxable income by as much as $4,000. You must itemize your deductions on Schedule A to claim this deduction.

Classes that don’t improve the taxpayer’s skills in his or her line of business are not eligible for a tax deduction. This includes classes that help you switch to a new career. For example, if a teacher decides to become a social worker, classes related to the new career of social work cannot be deducted. One interesting point about this deduction is that students who are not employed and pursuing an undergraduate degree cannot deduct the cost of classes or fees. According to Forbes, the logic behind this denial is that someone earning this type of degree is pursuing a new career and therefore ineligible.

Students who are not eligible for the IRS Tuition and Fees Deduction may still be able to reduce their tax liability with two education tax credits. The American Opportunity Tax Credit can be used for educational expenses for the first four years of college, with the maximum credit allowed per tax year set at $2,500. The amount of the credit is deducted from taxes owed. Taxpayers who owe less than their allowed credit may be able to get up to $1,000 back as a refund. The Lifetime Learning Credit can be used for all types of college and professional courses, including courses that train you for a new career. You can claim up to $2,000 in qualifying expenses per year, and there is no limit on the number of years you can claim this credit.

A taxpayer must take a class from an eligible school to receive an IRS deduction. The school must be a post-secondary educational institution that is eligible to participate in federal student aid programs. Within this category are many accredited public, private and non-profit schools, including colleges, universities and trade schools that offer online courses. When in doubt, a school should be able to tell you whether it is eligible under IRS rules.