The adjustment to income for educational expenses and student loan interest, the educational savings account, and the qualified tuition programs were discussed in Chapter 4, Adjustments to Income. Education tax credits are discussed in Chapter 6, Special Tax Issues and Tax Credits. This section will discuss the tax rules for deducting education expenses as an employee business expense or as a business deduction by the self-employed. Employees would report the deduction as a miscellaneous itemized deduction subject to the 2% of AGI limitation. Self-employed taxpayers would report the expense on Schedule C or F.

Taxpayers may deduct educational expenses if specific conditions are met. There are two tests related to the deduction of educational expenses, at least one of which must be met to deduct the expenses:

Educational expenses meeting one of the above tests may be deducted even if the education leads to a college degree. Educational expenses are not deductible, even if one of the above tests is met if (a) the education is required to meet the minimum requirements for the taxpayer’s current job, or (b) the education is part of a program that will lead to a new trade or business even if the taxpayer does not intend to enter that new trade or business.

Taxpayers who are required to meet educational standards beyond minimum requirements may deduct the expenses of the education. However, the expenses must be paid for education to maintain the taxpayer’s current job, not to meet the minimum requirements for that job. If the education qualifies the taxpayer for a new trade or business, the expenses are not deductible.

Expenses that are paid by a taxpayer for education to maintain or improve existing skills are deductible. Expenses deductible under this category include the costs of continuing education courses and academic work at a college or university. However, the education must not lead to qualification in a new trade or business.

Travel expenses (away from home) for trips that are primarily to obtain qualifying education are also deductible. For example, a taxpayer may deduct travel expenses for attending a continuing education course in a distant city. Whether a trip is primarily personal or primarily educational depends on the relative amount of time devoted to each activity. If the trip qualifies as primarily for educational purposes, the cost of transportation to and from the destination is fully deductible. Only the lodging and meal expenses connected with the educational activity are deductible. As is the case with travel expenses, the cost of meals is only 50% deductible. Expenses for “travel as a form of education” are not deductible.