Taking steps to build your work skills and knowledge through educational programs is a sound strategy for career advancement and both better pay and opportunities. What you may not be aware of is that under the right circumstances, your classes and several related expenses may be deductible from your yearly tax bill.
The key determining factors are related to how your education is being used to develop skills for yourcurrent job. Tax rules allow you to claim deductions if (1) the courses you’re taking are to stay apace or become better at meeting work demands or (2) you’re obliged to take these classes as a result of legal requirements or company policies.
What may seem like straightforward criteria, however, exist within a very narrow window. For example, if the courses are taken to attain the minimum pre-existing standards to do the job, if you are not currently working when the education program begins, or if you manage to gain enough skills to qualify you for an entirely different business, the IRS may challenge the deductions in court. Graduate school expenses tend to be deemed non-deductible as well, even if the degree being pursued would be applicable to one’s current field of employment.
If, however, your further education does manage to land on the right side of the deduction rules, you benefit from a no-limit ceiling as far as your related expenses go. Tuition is an obvious deduction, but so are textbooks, supplies, and even transportation expenses to the school facility (provided you are going to your classes directly from work). These should be categorized on your return as “miscellaneous” and the 2% of AGI deduction threshold will apply. Note that if your place of employment pays for your tuition, it may represent a better savings all around, as a company is allowed to fully deduct reimbursements to employees and the employees may receive these reimbursements tax-free.