Deductibility of Educational Expenses
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To determine whether an education expense is deductible, taxpayers must examine a series of tests. The first test determines whether the education qualifies under Section 162 as a trade or business expense. To pass this test, the taxpayer must be engaged in a trade or business and the education must have a direct and proximate relationship to the individual's skills required in his or her profession. If the taxpayer does not satisfy both criteria, then the education is considered personal in nature and is not deductible. If the individual satisfies both criteria, then another set of tests are analyzed. The second test is often ref erred to as the disqualifying test. Under this test, if the education is required to meet the minimum educational requirements or if it is part of a program of study that qualifies the taxpayer for a new trade or business, then the education expense is never deductible. Educational expenses that survive the disqualifying test are then analyzed using the third and final test often referred to as the qualifying test. The two criteria of the qualifying test allow an expenditure to be deductible provided the education maintains or improves the skills required in the taxpayer's business or is required to maintain the individual's current employment status.