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Tax Deductions for MBA Costs?

tax breaksWe all know the cost of an MBA is not insignificant. Beyond discussion of whether or not the investment is worth it, what if you could deduct the costs as a business expense? Can you?

A recent MarketWatch article delved into precisely that question, answering with a resounding “Depends.”

The general rule regarding business deductions for educational expenses says that as long as you incur the costs to maintain or improve skills used in your current job or self-employed business, you can deduct the costs as a business expense.

The MarketWatch piece reports that the IRS has always argued that an MBA degree automatically trains you for a new profession, preventing you from deducting those costs as unreimbursed employee business expenses or as self-employed business expenses.

But MarketWatch goes on to point out that the Tax Court takes a different position. “It says business deductions are allowed if the MBA training maintains or improves skills used in your current job, profession or business,” writes MarketWatch. “For example, if you are a marketing professional, I think you can clearly deduct MBA costs under this standard,” the article continues.

That said, if the MBA courses are taken before or shortly after you are hired in order to meet educational requirements for the job, then you can’t claim tax deductions for MBA costs. Likewise, you cannot deduct the cost of your MBA if it trains you for a new profession.

MarketWatch also provides the following guidance:

“Non-business credit: MBA costs are eligible for the non-business Lifetime Learning tax credit, which can be worth up to $2,000 a year under the rules explained earlier.

 Non-business deduction: You may be eligible to claim the non-business deduction for up to $2,000 or $4,000 of MBA tuition and related fees on Page 1 of Form 1040 under the rules explained earlier.”

Clear Admit is in no way offering tax advice. But if you are interested in learning more about potential deductions you might be eligible for with regard to the cost of an MBA, you might start by reading the complete MarketWatch piece and follow up with a consultation with a tax accountant.