Tax Research Memorandum

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To: Lauren Smith
From: Tax Accountant, CPA
Date: August 22, 2012
Re: Deductibility of Education Expense

Facts

You incurred $15,000 in education expense during the tax year in the course of earning an MBA from a local university. You wants to deduct these expenses on her tax return as an employee business expense, as your employer does not have an education expense reimbursement program.

Issue
The issue is (1) whether education expenses can be deductible on the tax return as an employee business expense, and (2) weather your employer not having an education expense reimbursement program will have an effect.

Rule
Work-related education expenses may be deducted as business expenses. However, in other to claim such a deduction, you must: be working, itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee, and have expenses for education that meet the requirements to be qualified. .

Analysis
The business deduction for work-related education is a federal income tax deduction for employees and self-employed workers who paid qualifying education expenses during the year. The deduction lowers the amount of income subject to tax. The deduction is not the same as a tax credit, which reduces the amount of taxes you owe (http://www.massresources.org/education-tax-deductions.html#work). According to the IRS Publication 970 (2011), it is stated that you can deduct the costs of qualifying work-related education as business expenses. To classify these expenses as deductible your education meets at least one of the following two tests. 1.The law to keep your present salary, status, or job and

2.The education maintains or improves skills needed in your present work. However, even if the education meets either of these tests, the education cannot be part of a program that will qualify you for a new trade or business, or needed to meet the minimal educational requirements of your trade or business. It will not be qualifying...
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