Discussion:Work-Related Education Deduction

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Discussion Forum Index --> Basic Tax Questions --> Work-Related Education Deduction


Discussion Forum Index --> Tax Questions --> Work-Related Education Deduction

Bsacc (talk|edits) said:

23 May 2014
Client is in the internet marketing industry. He leaves his job to get an MBA. While getting an MBA he does not work. He graduates and starts working in the internet marketing industry again, but for a different company. He is insisting on deducting the tuition he has paid as an unreimbursed job expense, meaning going back and filing for the few prior years. I know the MBA is highly scrutinized, but that's not even my issue because I have expressed this to him yet he wants to do it and fight the IRS should they have an issue with it. My issue is that he did not have income in those years that he was in school, so is it even possible to deduct the expenses as an unreimbursed job expense and generate an NOL to carry forward? What's the best way to handle this?

Any help is much appreciated.

Anarchrist (talk|edits) said:

23 May 2014
Don't NOLs have to be carried back first?

Bsacc (talk|edits) said:

23 May 2014
They HAVE to or CAN? My issue is that I don't even think it's possible to generate an NOL for work-related education costs. It needs to be reported on Schedule A, which doesn't generate the NOL.

Bsacc (talk|edits) said:

23 May 2014
But my confusion is how do people that leave their jobs temporarily to get their MBA use the deduction?

Anarchrist (talk|edits) said:

23 May 2014
Employee business expenses are business expenses. Business expenses can create a NOL. Non business Sch A deductions don't increase or generate an NOL.

NOLs have to be carried back first. Pub 536: "You can choose not to carry back your NOL. If you make this choice, then you can use your NOL only in the 20-year carryforward period. (This choice means you also choose not to carry back any alternative tax NOL.) To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year." The reason I brought it up was, depending upon his situation, carrying it back may not generate enough benefit to cover the cost of all the work. Just another angle to persuade him to drop the matter.

From the first page of the instructions for 2106: "You can file Form 2106-EZ, Unreimbursed Employee Business Expenses, provided you were an employee deducting ordinary and necessary expenses for your job". Right under that statement is a flowchart. The first question is "Were you an employee during the year?" If the answer is "No", the flow chart says, "Do not file Form 2106".

There may be court cases or other items out there showing it can be deducted, but the irs instructions indicate it can't.

BoulderDoug (talk|edits) said:

26 May 2014
Start with Reg 1.162-5. "IF those expenses are to (1) Maintains or improves skills required by the individual in his employment or other trade or business, or (2) Meets the express requirements of the individual's employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation." IF the MBA can be found to do this, then the expenses are deductible. If for employment, then they go on the 2106. If not, probably Schedule C. They WOULD be used to calculate an NOL Be aware that the IRS has been pretty narrow in whether the education expenses are for the current trade or business, or for a new one which would make them not deductible. They have been pretty successful in this position, so be sure to look for court decisions where the client prevailed.

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