Last week in our School of Tax Strategy call on Business Start Up expenses, we got to talking about education expenses. The IRS appears to be challenging a lot of education expenses, particularly those relating to public seminars on real estate and other investments. So, I promised I would give my opinion as to how to get the best tax benefits from your seminar education expenses.
Most people know about the Lifetime Learning and Hope Credits and other benefits for higher education though an accredited school. I'm not going to discuss those here. Rather, I'll focus solely on seminar expenses relating to some type of business or investing.
The general rule is that continuing education is not deductible if it qualifies you for a new profession. The genesis of this rule is in people going back to school for a law degree or some other professional designation. Congress decided that becoming qualified for a new profession should not be deductible.
So what about seminars for real estate and other businesses? If you are taking a class to become a real estate agent, that is clearly not deductible as it qualifies you for a new profession. On the other hand, if you are thinking about starting a new business, say real estate, then the seminars should qualify as investigative or other start up costs for the new business. These are generally amortized over 180 months once the business starts in earnest.
Let me give you an example. Suppose you spent $40,000 on educational courses and another $14,000 with attorneys and accountants and others to get the business set up. Once you begin business, you can start taking a deduction of $300/month for the next 180 months (15 years). ($54,000/180 = $300).
If your total start up costs are less than $50,000, then you can take a $5,000 deduction in the first year you do business and then amortize the remaining amount over 180 months.
The key here is to be able to show that the courses don't qualify you for a new profession, but rather are part of your investigative costs for your new business. I highly recommend you sit down with a qualified CPA who specializes in real estate to document your seminar expenses properly. Also, your CPA should know how to make the proper start up cost elections and how to properly report your expenses on your tax return. If you would like a recommendation for a qualified CPA, please feel free to call us at 866.467.5809 and ask for Wendy.
Warmest regards,
Tom
Comments (10)
Tom,
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