Are Training Expenses Tax-Deductible?

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The U.S. tax code allows qualified workers to deduct a percentage of job-related training expenses as a business expense. People transitioning into a new career field also may be able to deduct some of their training and educational expenses. Available options include a business deduction for work-related education and the Lifetime Learning Tax Credit.

Tax Deduction vs. Tax Credit

A business tax deduction and the Lifetime Learning Tax Credit achieve the same goal in different ways. Although both can reduce your total income tax liability, a business tax deduction achieves this by reducing taxable income, thereby reducing your tax bill. In contrast, the $2,000 Lifetime Learning Tax Credit does not affect your taxable income because you apply it after calculating your tax bill. However, it can reduce your tax liability up to the amount you owe.

Business Deduction Requirements

IRS rules say that for training to qualify as a business deduction, it must serve a legitimate purpose and benefit your employer. For example, either your employer or a law must require it to keep your present salary, status or job, or training must be necessary to maintain or improve current job skills. Although you can deduct training expenses associated with a post-secondary degree, the program must apply to your current career field, rather than simply qualifying you to transition into a new trade or business.

Taking a Business Deduction

If you qualify, the IRS allows you to include tuition, books, supplies, lab fees and associated expenses in a business deduction. You also can include certain transportation expenses, such as local transportation costs of going directly from work to school. To get the deduction, you must itemize deductions on Form 1040. In addition, work-related education expenses are subject to the two percent income exclusion, meaning that you only qualify if the total exceeds two percent of your adjusted gross income.

Lifetime Learning Credit

The Lifetime Learning Credit may apply if you enroll in a post-secondary degree program or take classes at a qualified educational institution to acquire new job skills. The tax credit allows for up to $2,000 each year for tuition, books, supplies, and equipment paid directly to the institution as a condition of enrollment or attendance. For example, books purchased from the school bookstore qualify, but not books you purchase from an independent retail website. In addition, there are income limitations. To qualify, your income cannot exceed $127,000 if married filing jointly, or $63,000 if filing single, head of household or as a qualifying widow or widower. Unlike with a tax credit, you can apply the credit whether you file using Form 1040 or 1040A.