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The
subject is a financial analyst going back full-time for an MBA (majoring
in Finance). The MBA in finance would improve his skills in his current
line of work. His current job does not require an MBA, but it is referred
to as a "plus" in the job description. Are the costs for the
tuition, etc. tax-deductible? E.E. (via e-mail)
The IRS allows a
miscellaneous itemized deduction for certain education costs. If you have
already met the minimum requirements for your job, and the additional
education you take does not qualify you for a new trade or business, you
are entitled to take the deduction. The MBA program expenses can qualify
as deductible expenses if you are currently employed in the finance arena
and these courses will not qualify you for a new job, but will improve
your skills in your current job.
If
you meet these requirements and are eligible to take a deduction for your
expenses, you must itemize your deductions on Schedule A. The education
deduction falls under the 2% rule for miscellaneous deductions, meaning
that only the portion of your miscellaneous deductions that exceeds 2% of
your adjusted gross income will be counted as a deduction. You will report
the total amount of expenses on Schedule A. There is a place on that
schedule where the 2% computation can be performed.
The
types of expenses that qualify for the education deduction include:
-
tuition
-
books
-
supplies
-
lab
fees
-
transportation
-
research
-
typing
-
computer
Lifetime
learning credit
There
are other options for tax benefits that you should consider. The lifetime
learning credit is available to any student enrolled in college-level
courses, including graduate school. The credit applies to tuition and
fees. Books and supplies qualify only if the cost of these items is paid
directly to the college as a condition of enrollment.
The
lifetime learning credit is 20% of the first $5,000 you pay for tuition
and fees, or a maximum of $1,000. The credit may be taken each year, and
there is no limit to the number of students in the family who are claiming
this credit.
The credit
may be reduced if your income is too high. For single taxpayers, the
credit begins to phase out when income reaches $40,000 and phases out
completely when income reaches $50,000. For married taxpayers filing
jointly, the credit begins to phase out when income reaches $80,000, and
phases out completely when income reaches $100,000. There is no credit
allowed for married taxpayers who file separately.
The
credit may be reduced if your income is too high. For single taxpayers,
the credit begins to phase out when income reaches $40,000 and phases out
completely when income reaches $50,000. For married taxpayers filing
jointly, the credit begins to phase out when income reaches $80,000, and
phases out completely when income reaches $100,000. There is no credit
allowed for married taxpayers who file separately.
Deduct
student loan interest
If
you borrow money to pay for college costs, you may be entitled to take a
deduction for the interest expense on the borrowed funds. The deduction is
taken as an adjustment to income on page one of your tax return, which
means that you don’t need to itemize deductions to qualify for this
deduction.
Deductible
student loan interest is interest paid during the first 60 months in which
the loan payments are required. The maximum deductible amount is $2,000
for the year 2000 and $2,500 for the year 2001 and years thereafter. The
loan can be for tuition, books, fees, and room and board.
As
with almost all nice things in the tax code, there is an income
restriction on the deduction of student loan interest. The student loan
interest deduction begins to phase out at income of $40,000 for single
filers with complete phase-out at $55,000. For married join filers the
phase-out begins when income reaches $60,000 and phases out completely at
$75,000.
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