Tax Court Disallows Deductions for Costs to Expand General Knowledge

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Here’s part two of last week’s case study on Business Deductions for Education Costs:

In another recent Tax Court decision, a married couple (a college professor and librarian) weren’t allowed to deduct as unreimbursed employee business expenses the costs of their home Internet service, computer, cell phone and satellite television system, as well as books, DVDs and CDs that they claimed were kept for a “professional library.” The husband argued that, as a college professor, he was professionally charged with “self-educating.” So, he and his librarian wife had to constantly expand their “general knowledge” to be effective at their jobs.

But the Tax Court didn’t buy that argument. It concluded that the alleged education expenses were really just nondeductible personal living expenses. (Lawrence A. Tanzi, TC Memo 2016-148)

The Lessons

The IRS wants you to believe that MBA costs are almost never deductible as business expenses. However, because MBA programs, by their nature, provide broad and general training, the costs will often be deductible on the grounds that the courses maintain or improve skills needed in your current business, job or profession.

But, your MBA expense won’t be deductible if you haven’t yet become established in a business or profession — or if your employer requires an MBA degree as a prerequisite for obtaining or retaining your present job.

Finally, your claims must be reasonable. You can’t claim deductions based simply on the pursuit of lifetime learning. If you’re audited, these expenses will almost certainly be disallowed and, instead, be considered personal living expenses.

If you have questions about the deductibility of education costs, consult your tax advisor.