Tax Benefits for Education Expenses

Presented by Michael Fontanello & Carol Duffield
at University of California, Berkeley Haas School of Business

March 12, 2013

Fontanello, Duffield & Otake, LLP
Material Edited & Reviewed by: Lisa Menezes


you can only choose one. it’s important to understand specifically what options are available to you: – adjustments – credits – deductions • No matter which option you choose. March 12. You cannot “double-dip” on reporting MBA education expenses on your return.Introduction • You can receive tax benefits for your MBA education expenses on your tax return. LLP 2 . In order to receive the greatest tax benefit. Duffield & Otake. 2013 Fontanello.

2013 Fontanello. LLP 3 . Duffield & Otake. information on the 1098-T is provided by the University Education Expenses Excludable from Income – “Tax-Free” – Scholarships – Employer-provided educational assistance Tax Benefits for Education Expenses – Student loan interest deduction – Tuition and fees deduction – Lifetime Learning Credit – Education exception on early IRA distributions – Unreimbursed employee expenses deduction • Work-related education expenses • 2 Tax Court Cases • March 12.Agenda • • What are considered Qualified Education Expenses? – Qualified Education Expenses are reported on Form 1098-T.

153) • “Class Pass” Fee (Bus Pass of $78. 2013 Fontanello. LLP 4 .Qualified Education Expenses 1098-T Tuition and fees Books.50) • • • • • March 12.Sch A) Other ordinary and necessary expenses Internal Revenue Code § 162(a) • University excludes the following from 1098-T: • SHIP Fee (Student Health Insurance of $1. supplies and equipment Transportation (limited. Duffield & Otake.

required books.Education Expenses Excludable from Income • Scholarships – Tax-free if you are a degree-seeking candidate – Used the funds for qualified education expenses: • Required tuition and fees • Course-related expenses. supplies. etc. Duffield & Otake. 2013 Fontanello. LLP 5 . or research – Remainder of scholarship not used for qualified education expenses is taxable March 12. – Cannot be used for room and board. travel.

LLP 6 .250 of your education expenses tax-free March 12. 2013 Fontanello.Education Expenses Excludable from Income • Employer-Provided Educational Assistance – An employer can pay up to $5. Duffield & Otake.

Line 40 If Itemizing Deductions) • Credit – Lifetime Learning Credit (Form 1040. Duffield & Otake. 2013 Fontanello. Line 33) – Tuition and fees (Form 1040. Line 34) • Deductible from AGI – Unreimbursed employee expenses (Form 1040. LLP 7 .Tax Benefits for Education Expenses • Deductible for Adjusted Gross Income (AGI) – Student loan interest (Form 1040. Line 49) March 12.

500 • Expenses paid with the loan are also deductible March 12.Student Loan Interest (Deduction for AGI) • Form 1098-E • A deduction for interest you paid on education loans for qualified education expenses • Must have a modified AGI of less than $75.000 married filing jointly-MFJ) • Maximum deduction is $2. Duffield & Otake. 2013 Fontanello. LLP 8 .000 ($155.

LLP 9 .000 March 12.Tuition and Fees (Deduction for AGI) • Form 8917 • You paid qualified education expenses (not through a scholarship) • Must have a modified AGI of less than $80.000 MFJ) • Cannot be a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes • CANNOT take this deduction if you are claiming an education credit (Lifetime Learning Credit) • Maximum deduction is $4. Duffield & Otake.000 ($160. 2013 Fontanello.

000 for qualified education expenses (20% of up to $10.000 MFJ) • Can claim a credit of up to $2. 2013 Fontanello.Lifetime Learning Credit • Form 8863 • There is no limit to the number of years you can claim this credit • May be claimed for any course (degree or non-degree) at a college or university • Must have a modified AGI of less than $62. LLP 10 .000 ($124.000 in expenses) March 12. Duffield & Otake.

you will still need to pay income tax on the early distributions • The IRA distribution must be made directly to the educational institution March 12. books.Education Exception on Early IRA Distributions • The 10% additional penalty tax does not apply if the individual uses the IRA distribution to pay for qualified higher education expenses including tuition. Duffield & Otake. LLP 11 . fees and equipment. 2013 Fontanello. • However.

2013 Fontanello.Must itemize deductions (standard deduction is $5.Unreimbursed Employee Expenses (Deduction from AGI) • • • Schedule A. including paid airfare. $11. to seminars Caution: There is a limitation on 2% miscellaneous expenses that can put you in Alternative Minimum Tax (AMT) • March 12. LLP 12 .950.900 MFJ) Form 2106 Deduction would be any work-related expenses including education plus other job and certain miscellaneous expenses greater than 2% of your AGI – Miscellaneous expenses include: • Commuting back and forth to class from work • Travel. Duffield & Otake.

Unreimbursed Employee Expenses: Work-Related Education Expenses • Requirements for Unreimbursed Employee Expenses: – At least one of the following: • The education is required by your employer or the law to keep your present salary. AND/OR • Be a part of a program of study that will qualify you for a new trade or business • Two MBA Tax Court Cases Fontanello. 2013 . OR • The education maintains or improves skills needed in your present work – The education expenses CANNOT: • Meet the minimum educational requirements of your present trade or business. Duffield & Otake. status or job. LLP 13 March 12.

the MBA only enhanced and maintained skills he already used on the job and was not a minimum education requirement – Agreed with IRS Commissioner in regards to other unreimbursed employee business expenses such as meal.Case #1: Daniel R. Commissioner (Unreimbursed Employee Expenses) • IRS had disallowed $17. Duffield & Otake. Daniel could not substantiate these expenses March 12. 2013 Fontanello.500 in tuition and other unreimbursed employee expenses for pursuing his MBA • Tax Court findings: – Agreed with Daniel in regards to the tuition expense. travel and vehicle expense. v. Allemeier. LLP 14 . Jr.

2013 Fontanello.787 in unreimbursed employee business expenses for education expenses • Tax Court findings: – Agreed with Lori that the MBA was not a minimum education requirement needed to secure her positions – Agreed with Lori that the MBA did not qualify her for a new trade or business March 12. Commissioner (Unreimbursed Employee Expenses) • IRS disallowed a deduction of $14. LLP 15 . Duffield & Otake.Case #2: Lori Singleton-Clarke v.

Federal Tax Forms • • • • • • • Form 1040 US Individual Income Tax Return Form 1040 Schedule A Itemized Deductions Form 1098-E Student Loan Interest Statement Form 1098-T Tuition Statement Form 2106 Employee Business Expenses Form 8863 Education Credits Form 8917 Tuition and Fees Deduction March 12. LLP 16 . Duffield & Otake. 2013 Fontanello.

2013 Fontanello.Documentation! Documentation! Documentation! March 12. LLP 17 . Duffield & Otake.

LLP 18 . 2013 Fontanello. Duffield & Otake.Questions? March 12.