Discussion:Training Expense

Does this original $2800 in education/training qualify for tax deduction? Should it be expensed first year, or capitalized? Could it qualify as part of $5,000 start up costs tax wise?

taxbilly

For purposes of the Lifetime Learning Credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution to acquire or improve job skills

I stand by my original post...the school must be acredited or the cost should be expensed under seminar/training on the Sch C. with no education credit applying.taxea

Let me see, under Section 195 elect to deduct the the tools, etc., as start-up costs.

Well maybe, doing the Section 195 deduction avoids the Section 179 income limitation. Right?

A Schedule C deduction for my JD, I don't think so. However, Reg 1.162-5;

(1) MAINTAINING OR IMPROVING SKILLS. The deduction under the category

    of expenditures for education which maintains or improves skills 
    required by the individual in his employment or other trade or 
    business includes refresher courses or courses dealing with current 
    developments as well as academic or vocational courses provided the 
    expenditures for the courses are not within either category of 
    nondeductible expenditures described in paragraph (b) (2) or (3) of 
    this section. 

Two tests are used to determine whether the education qualifies the taxpayer for a new trade or business: the objective test and common sense approach. Basically, a comparison of the tasks associated with the taxpayer's new and previous positions.

The objective test states that the court should look only to whether the education qualifies the taxpayer for the practice of a new trade or business.

The "common sense approach" states that the court should determine whether the education qualifies the taxpayer for significantly different tasks than previously qualified to perform.

The phase new trade or business is not clearly, defined.

Under Revenue Ruling 99-23, expenses to determine WHETHER to enter or acquire a new business, and WHICH new business to enter or acquire are deductible as startup costs. The ruling refers to the desirability of encouraging the formation of new businesses.

Of course, if education expenses were deductible, there would be a huge hit in terms of tax revenues (we can't have that!), so there's an inevitable conflict between the treatment of education expenses and startup costs, and a line to be drawn somewhere.

Clearly getting a bachelor's degree in English for a student who wants to look into becoming a writer can't be deducted as a business expense under current law, but I think there's a good argument that the home inspection courses are very much different.

I think we can reasonably argue that they pass the "whether or which" test and therefore are deductible startup costs. Or, they could even be deductible as ongoing training for someone in the handyman business.

Any other thoughts, anyone?

The same with the handyman. In order to become an inspector, he had to learn more about inspecting and the various parts of the construction industry that he didn't deal with previously.

This is not a business expense.

The deduction for life time learning credit is another matter.

EZTAX...no I don't agree. What I do agree with is that if the school is not accredited the education credit cannot be taken. I learned that every penny out of pocket for a business is expense-able in one way or another. You have to look at the taxpayer as a business owner, not an employee looking for a new job. I say the training qualifies either as startup or as seminar/training expense.taxea

(B) which, if paid or incurred in connection with the operation

         of an existing active trade or business (in the same field as 
         the trade or business referred to in subparagraph (A)), would be 
         allowable as a deduction for the taxable year in which paid or 
         incurred.

to me precludes the inclusion of the above reference educational costs as a start-up cost, unless, such costs, would qualify as on going educational costs, an oxymoron or contradictory position. A start-up expenditure is an expense that would be allowable as a deduction in connection with the operation of an existing trade or business in the same trade or business.

I am not pontificating on a handyman, who desires to expand his current business and takes training to enhance his skills, and as result, becomes a home inspector. Would the answer be different if the handyman was licensed to build a home?

True, I might have scored a few touchdowns for the other side, but I can only point to the estimable Wright brothers as proof that one does not have to comprehend something in order to really mess it up.

Or, to put it another way, former CIA director George Tenet won the Presidential Medal of Freedom having had 911 occur on his watch. (Some scalawags have suggested that this was to keep him forever mum on what he had told the President prior to the event).

Perhaps a good point to look at is whether the courses are in a college setting and lead to college degree, rather than being more trade oriented.