The Tax Cuts and Jobs Act, TCJA, passed in 2017, suspended the income tax deductions for work-related educational expenses for employees from 2018 through 2025. There's no guarantee that the IRS will reinstate employee deductions for educational expenses after 2025, but it's possible that Congress might renew all or portions of the TCJA at that time.
Fortunately, the TCJA retains allowable education costs as deductible business expenses for sole proprietorships and self-employed taxpayers. They've only been eliminated as work-related expenses incurred by taxpayers who are employed by someone else.
Let's look at which work-related educational expenses are deductible and how they should be reported on a self-employed person's Form 1040.
Read More: What Are Self-Employed Taxes
Requirements to Deduct Expenses
The expenses must be related to your current work. The IRS allows deductions for educational expenses that maintain or improve your skills in your current job. A dental hygienist might take courses to learn new medical techniques or how to operate more sophisticated equipment. Security personnel might attend classes for up-to-date information on new regulations or training in new techniques on dealing with confrontational situations.
Education that enables an individual to provide services for another aspect of the trade is deductible as improving a skill rather than entering a new trade or profession.
Certain educational expenses can be deducted even if they lead to a degree, as long as the degree does not qualify the student for a new trade or business and it's not necessary to meet the minimum requirements of the student’s current job.
The expense must also be mandated by law or regulations. Some state and local governments require certain professions to take a minimum number of continuing education courses to maintain their licenses or certifications. For example, some states require professional counselors to take 30+ hours of continuing education to renew their licenses every two years.
Expenses That Are Not Deductible
You can't deduct educational expenses that would qualify you for a new trade or business. Suppose you’re already certified as a teacher and you have an active tutoring business and work as a substitute teacher. But you decide that you want to diversify your income by also becoming a real estate agent. You could not deduct the expenses for educational classes to learn how to become a real estate agent because the IRS would consider that a new trade or business.
The IRS doesn't allow deductions for educational expenses that are necessary to meet the “minimum requirements” for a job. Take a plumbing contractor as an example. The cost of taking plumbing education courses to learn the trade and pass an exam would not be deductible if the state requires passing an exam to obtain a license. These would be considered to be costs required to meet the minimum requirements to enter a trade or profession.
Direct Expenses That Can Be Deducted
Education expenses the IRS allows you to deduct are:
- Tuition, books, lab fees, laptop computers and supplies
- Certain travel and transportation costs
- Research costs and typing
How to Deduct Educational Expenses
A self-employed taxpayer or a sole proprietor would deduct educational expenses using Schedule C, Profit or Loss From Business, and file that form with their Form 1040 tax return. Schedule C does not have a specific category to use for educational expenses. You would itemize all your qualifying educational expenses in Part V then enter the total on Line 27a labeled “Other expenses.”
Not only do deductions for educational expenses reduce taxable income for self-employed individuals, but these deductions can also reduce the amount of self-employment taxes.
All self-employed individuals should keep proper records and documents to support business-related expenses. Retain all bills, receipts and invoices for work-related educational expenses to be able to prove each expense in the case of an audit.
- IRS: Work-Related Education Expenses
- Intuit TurboTax: Can I Deduct Work-related Education Expenses?
- Bureau of Labor Statistics: Will I Need a License or Certification for My Job?
- Study.com: Continuing Education: Do You Need It?
- IRS: 2021 Schedule C Profit or Loss From Business
- Tax Policy Center: How Did the TCJA Change the Standard Deduction and Itemized Deductions?
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.