The cost of educating yourself or your employees is a deductible business expense if it is a condition of employment or maintains or improves skills used in the current business—the courses can’t qualify the student for a new career. In some cases, an education expense might qualify for both the business deduction and a personal education credit. When that happens, knowing what education expenses are tax deductible to a business might help you identify a larger tax savings than could be achieved with an education credit.
Key Takeaways:
- Deductible education expenses can’t qualify a taxpayer or employee for a new trade or business.
- Under current law, self-employed workers and employers are eligible to take the deduction; the deduction for W-2 employees is suspended through 2025.
- A deduction for education expenses taken on a business return is different from the education credits that are taken on a personal tax return (Form 1040).
What Is Considered a Deductible Education Expense?
Deductible educational expenses include the following costs:
- Tuition or other course fees
- Lab fees
- Books and supplies
- Educational subscriptions and publications
- Refresher courses, workshops, and seminars
- Certification and licensing fees
- Travel and transportation expenses to get to and from a qualifying educational program
The IRS emphasizes the need for reasonableness in expenditures. For instance, when a deductible educational program is underway, reasonable fees related to researching and compiling papers and dissertations are considered deductible business education expenses.
Deducting the Cost of Degree Programs
Case law indicates that the IRS may view deductions critically when they are for general associate’s and bachelor’s degrees—even if the programs include classes that maintain or improve the skills of the taxpayer’s current job function. The IRS takes the position that general bachelor’s and associate’s degrees frequently include a well-rounded breadth of general instruction classes that could qualify a taxpayer for a variety of different trades or businesses.
In some cases, when the degree program prepares the taxpayer to perform significantly different tasks than those conducted before the advanced degree, the tax courts have agreed that the education qualifies the taxpayer for a new trade or business and, therefore, is not deductible.
Who Can Take a Business Education Expense Deduction?
Under certain circumstances, the IRS allows self-employed individuals, employers, and W-2 employees to take a business expense deduction for education expenses.
There are three ways in which a business education expense could be deductible:
- Education a business owner received themselves (business returns include Schedules C and F and are included with a personal Form 1040)
- Education of a business owner’s employee
- Education expense of a W-2 employee that their employer did not reimburse, although this is suspended through 2025
Trade or Business Requirement for Students
For business education expenses to be deductible, the IRS requires the taxpayer to be in an established trade or business, which includes being an employee. However, being a student does not qualify as a trade or business. Unemployed students For purposes of this analysis, unemployed means not being self-employed or working for someone else. may be eligible for education credits or the tuition and fees deduction but may not take a business deduction for education expenses.
In some instances, summer employment while matriculating through a degree program has not been sufficient to meet the trade or business requirements for deducting education expenses. However, the IRS has affirmed the deduction for taxpayers in a trade or business who took a hiatus to pursue education that otherwise met the criteria for deduction.
Tests for Deducting Education as a Business Expense & Disqualifiers
Education can be deducted as a business expense when it meets one of these two requirements:
- it is a condition of employment, or
- it improves or maintains job skills used in a current position.
However, even if you meet one of the two criteria above, the deduction will be disallowed because of the following:
- it qualifies the student for a new career, or
- it meets the initial requirements of the position.
In addition, the expenses have to be incurred in a trade or business, which includes being an employee. Educational expenses solely paid to achieve personal goals are not deductible business expenses.
Test 1: Condition of Employment
Education must be a condition of employment to be deductible.
- For an employee, basic conditions of employment are defined by the employer.
- For self-employed individuals, conditions of employment are governed by laws implemented by relevant jurisdictions.
Test 2: Requirement to Maintain or Improve Skills
As time passes, industry standards evolve. To remain current and competitive, workers must keep credentials current and be privy to modern technology, trends, and processes relevant to their respective industries. Classes taken to achieve the objective of remaining current and competitive within a business industry meet the requirement for maintaining and improving skills.
Disqualifier 1: Qualifies the Student for a New Career
If courses taken to maintain or improve job skills also qualify the student for a new position of employment, the deduction is not allowed.
Here are some examples of deductible business education expenses that improve job skills and don’t qualify the student for a new career.
- Junior manager taking a retail management class and is later promoted to senior management
- Therapist taking classes on modern treatment plans and therapeutic processes
- Self-employed graphic designer taking courses to explore how to use new graphic design tools
- Self-employed nail tech taking courses on the most modern ways to do nail design
- Software programmer taking courses in new coding languages
- Line cook taking a class on efficient ways to keep food moving through their station
- An architect taking a conference on new ways to structure buildings
- A web designer taking online courses on new design techniques
- License professional taking general continuing professional education (CPE or CE)
While certain education requirements may be a condition of employment, if the education requirements qualify the taxpayer for a new trade or business, then the expense is not deductible.
Here are some examples of nondeductible expenses that are disqualified because they qualify the taxpayer for a new trade or business:
- Professional chemist getting an advanced degree where skills are taught outside of the scope of the chemist’s current duties
- Bookkeeper taking computer coding classes
- Bookkeeper taking college courses in pursuit of certification as a CPA
- Flute teacher’s cost for pursuing a degree in music therapy
- Economists required by their employers to get law degrees, even though they will continue with their economist duties and not practice law
Disqualifier 2: Meets the Initial Requirements of the Position
Education is not a deductible expense if it allows the student to initially meet the requirements of their trade or business. The criteria for whether or not education received meets the definition of minimum job training boil down to the following:
- legal requirements
- employer specifications
- industry standards
The cost for individuals to initially meet the basic criteria for a particular position is nondeductible. If evolving professional standards result in changes to the basic criteria down the road, then the cost of education to meet the new criteria is deductible. Also, after initially meeting the minimum requirements, the cost of meeting ongoing minimum requirements is deductible—for instance, the cost of minimum continuing professional education for CPAs, enrolled agents, and lawyers is deductible.
Let’s look at examples of how the IRS views minimum training requirements.
- Example 1: Paul Plunger is a master plumber who started Plumber Bros, Inc., with his brother Perry in 2019. When Paul and Perry were initially licensed by the state, they were required to take 100 hours of educational training before being licensed. This education to initially meet this minimum is nondeductible.
In 2024, however, the state required master plumbers to take an additional 30 hours of training to maintain their master plumber designation. The cost of the additional 30 hours of training is deductible since it is required to maintain a job position and pay scale.
- Example 2: Peyton, an employee at Plumber Bros, Inc., also has a master plumber certification from the state, having completed his 100 hours in 2020. In 2024, when the state changed the rules for master plumber certification, Plumber Bros informed Peyton that he would need to pay for the 30 additional hours out of his pocket.
Technically, Peyton qualifies for an employee education expense deduction for the cost of the 30 hours since he had already met the minimum requirements in 2020. However, as discussed above, Peyton’s employee expenses have been suspended through 2025. Peyton’s next best option would be to check his eligibility for the IRS’s tuition and fees deduction or education credits.
For purposes of deducting education expenses, performing the functions of a job does not directly equate to satisfaction of minimum training requirements for a job position.
Let’s assume Peyton had not received any educational hours of training but had been performing all of the tasks of a master plumber since he started working with Plumber Bros. Should he decide to obtain his official master plumber’s license in 2024, the required 130 hours would not be nondeductible since the licensure aspect would be considered a new trade or business for which the 130 hours would now make him eligible.
Frequently Asked Questions (FAQs)
Yes, as long as the training is a condition of employment and does not qualify the taxpayer for a new trade or business.
The IRS does not specify a dollar limit for educational expenses, but tax courts have denied deductions for what they considered to be unreasonable expenditures when they believed more practical options were available.
The IRS does not require that proof be submitted for educational expenses with tax return filing. However, you should retain evidence of your expenses. In the event of an audit, proof of those payments would be required.
Bottom Line
You can deduct education expenses for your business when the training is a condition of employment and does not make you eligible for a new trade or business. In addition to retaining receipts and proof of payment, you should save course descriptions and any syllabus that you receive. These documents will help support your business education deduction claims in the event of an audit.
