Educational Expenses for Engineers: Deducting the Cost of Your MBA Degree
By Alan L. Olsen, CPA MBA (tax)
Greenstein Rogoff Olsen & Co. LLP
Attention engineers!! You may be able to deduct the cost of your tuition spent for
your MBA degree. In order to do so you must connect your MBA degree with a business
purpose and it cannot qualify you for a new line of work.
The current tax code gives tax breaks to subsidize education costs through:
- Tax-Free scholarships and fellowships for individuals working on degrees,
- Lifetime learning credits,
- Hope education credits, or
- Deducting student loan interest.
However, if your adjusted gross income is above $53,000 (single) or $107,000 (joint)
you generally cannot take advantage of the the credits.
However, you still may be able to deduct your higher education expense without regard
to the income limitation. In order to qualify for deducting these costs you must
already hold a degree and be currently working.
Educational expenses are deductible when the following tests are all met:
- Educational expenses are deductible as ordinary and necessary business expenses
when it is work-related.
- It is qualifying educational expenses which are to improve skills required in the
taxpayer’s employment or to meet the express requirements of the employer.
- The educational expenses incurred are not to meet minimum education requirements
or to enter into a new trade or business.
- Deductible educational expenses include tuition, books, supplies, lab fees, certain
transportation and travel costs, costs of researching and typing.
Education expenses for an engineer pursuing an MBA degree were allowed in the following
- The educational expenses for master’s degree in administration directly related
to his employment are deductible if an engineer’s significant portion of his duties
consisted of management, interpersonal and administrative skills. (R.C. Beatty,
40 TCM 438, Dec. 36,997(M), TC Memo. 1980-196.)
- A manager left his position for 2 years to pursue graduate course and returned to
work was allowed to deduct the cost of attending school since he was carrying on
a trade or business at the time he incurred the education expenses. (S.G. Sherman,
36 TCM 1191, Dec 34,621 (M), TC Memo. 1977-301.)
Educational expenses for an engineer pursuing an MBA degree were not allowed in
the following instances:
- An engineer who takes courses in order to increase his earning capacity but not
to maintain an existing position or improve his skills, the educational expense
is not deductible. (K.F. Larson, 15TCm 956, Dec. 18,007)
- An engineer was not allowed to deduct educational expenses incurred while he was
a technician and such courses led him to meet the minimum requirements for a position
of assistant manager. (B.A. Josephs, 39 TCM 138, Dec. 36,310 (M), TC Memo. 1979-371.)
If the education is job-related, maintaining or improving skills, not for the minimum
educational requirement, they are deductible as itemized deduction subject to 2%
limitation. So, an engineer whose duties involved management, interpersonal and
administrative skills is allowed educational expense deductions for costs incurred
in obtaining a master’s degree in administration.