Self-Employed Tax Incentives to Start or Finish Your Degree

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Making Higher Education Affordable for Self-Employed Individuals

Are you considering when to finish your degree or start a degree program? It’s part of your dream and a building block for a better future. There’s no better time to start the process than while you are self-employed. You have a unique opportunity to utilize the IRS rules and make that degree more affordable. You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

  • The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
  • The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it isn’t qualifying work-related education if it:

  • Is needed to meet the minimum educational requirements of your present trade or business, or
  • Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

If your education isn’t required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments, and academic or vocational courses.

Example.

You are a Self-Employed Real Estate Agent. To keep up with the latest changes, you take special courses in marketing or pursue a business degree program specializing in marketing, accounting, management, etc. These courses maintain and improve skills required in your current profession.

Records to Keep.

You should keep adequate records or have sufficient evidence that will support your expenses. Estimates or approximations don’t qualify as proof of an expense. Some examples of what can be used to help prove your expenses are the following.

  1. Documents, such as transcripts, course descriptions, catalogs, etc., showing periods of enrollment in educational institutions, principal subjects studied, and descriptions of educational activity.
  2. Canceled checks and receipts to verify amounts you spent for:
    1. Tuition and books,
    2. Meals and lodging while away from home overnight for educational purposes,
    3. Travel and transportation, and
    4. Other education expenses.

Conclusion.

If you are self-employed, you must report the cost of your qualifying work-related education on the appropriate form used to report your business income and expenses (generally, Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040)). If your education expenses include expenses for a car or truck, travel, or meals, report those expenses the same way you report other business expenses for those items. You can deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both income tax and self-employment tax. Contact Justin Gardner, CPA at jgardner@GardnerFinacialLLC.com or 614-664-3920 to start planning for your degree program today.

 

Source: IRS Publication 970 (2016)