D d ti Education
Deducting
Ed ti Expenses
E
Presented by Michael Fontanello of
Fontanello, Duffield and Otake, LLP
44 Montgomery Street, Suite 2019, San Francisco, CA 94104
(415) 983-0200
at University of California,
California Berkeley
Haas School of Business
Introduction
• Tax law can come from each of the three
branches of government
– Legislative: Internal Revenue Code (IRC)
– Executive: Revenue Rulings, Revenue Procedures,
and Letter Rulings from the Internal Revenue Service
(IRS), a branch of the Treasury Department
– Judicial: Court decisions regarding tax law can come
from almost any court in the judicial system, with the
Supreme Court being the highest authority
Introduction
• Income taxes are collected from businesses,
individual taxpayers, and other entities
• Individual taxpayers historically account for
about 45% of annual tax revenues in any given
year
• Income tax rates for individuals are progressive
(S S
(See
Supplemental
l
t l IInformation,
f
ti
pg. 6 off
handout)
Introduction
• Total tax liability for any taxpayer is calculated
based on total income, taxable income,
applicable exclusions, deductions, exemptions,
and credits
• Deductions from Adjusted Gross Income (AGI)
are the greater of the two of either the standard
deduction or itemized deductions
Introduction
• Deductions for AGI can include business
expenses, property rental expenses, moving
expenses, contributions to an IRA, other
allowable deductions
• IRS examinations
• During an audit,
audit taxpayers are asked to
substantiate deductions, credits, or income items
reported
p
on a tax return
Deducting Education Expenses
• Each taxpayer should take into account their
specific facts and circumstances, the tax code,
and
d applicable
li bl ttax llaw tto d
decide
id whether
h th certain
t i
available deductions or credits are applicable to
their individual situation
Deducting MBA Education Expenses
• Qualifying attributes for deductibility of
education expenses
– Enrolled at least half time in degree program
– Citizenship
– Un-reimbursed
Un reimbursed business expenses
Deducting MBA Education Expenses
• Deductible education expenses can include:
–
–
–
–
Tuition and fees
Lab fees
Required books and equipment
Room and Board
Case Law About Deductibility of
MBA
• Daniel r. Allemeier, Jr. v. Commissioner
– Employee must typically have a particular degree
before being hired
– Deductions of education expenses have usually been
disallowed when the education qualifies the taxpayer
to enter a new trade or business
– New titles or abilities do not necessarily equate to
entering a new business
Case Law About Deductibility of
MBA
• Singleton-Clarke v. Commissioner
– IRS allowed a deduction of $14,787 in education
expenses for obtaining an MBA
– Taxpayer had worked as an RN for 24 years prior to
seeking an MBA
– Taxpayer paid the entire cost of her MBA out-ofp
pocket
Case Law About Deductibility of
MBA
• Singleton-Clarke v. Commissioner (cont.)
– Performance of services as an employee
p y constitutes
a trade or business
– An employee must not have the right to
reimbursement of education expenses from an
employer in order to deduct
– Education expenses
p
are not deductible if they
yq
qualify
y
a taxpayer for a new trade or business
Specific Deductions, Credits and Tax
Benefits for Education
• Specific deductions, credits, or tax benefits
available relating to education expenses (See
supplemental information)
– Lifetime Learning Credit
– Student
St d t L
Loan IInterest
t
t Deduction
D d ti
– Scholarships, Fellowships, Grants and Tuition
Reductions
– Employer Provided Educational Assistance
– Education Exception on Early IRA Distributions