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If you otherwise qualify, you can do this in a sole proprietorship as a business expense in schedule C. It can still be a business expense if you have an LLC, etc... but if your program is one of reimbursement, the maximum that you can reimburse an employee is $5,250 without it being taxable to the employee.
Businesses must pass four tests that the IRS uses to determine tax break eligibility for tuition reimbursement. The first test requires that "the program benefits employees who qualify under rules set up by you that do not favor highly compensated employees." Companies with a collective-bargaining agreement for some employees must be careful that these workers are not excluded unless it was part of its bargaining. The second test must ensure that shareholders and owners do not derive more than 5 percent of its benefits for the year. The third test forbids employees from having the option to "...choose to receive cash or other benefits that must be included in gross income instead of educational assistance." The fourth test requires that eligible employees receive reasonable notice of the program.
An educational expense will qualify if it meets either one of two tests. First test: The expense maintains or improves skills that are required in your employment or your current trade or business. Treas. Reg. § 1.162-5(a)(1). Examples include negotiation seminars for a salesperson, employment law or employee benefit seminars for HR managers, and finance courses for bookkeepers. Second test: The expense meets the express requirements of your employer or of applicable law or regulations, imposed as a condition to the retention of your employment, status, or rate of pay. Treas. Reg. § 1.162-5(a)(2). Examples include update courses required to maintain a law or accounting license, police marksmanship courses, truck driver transportation updates, etc.
So if you're going to be paying for others to get education, it would best to have an LLC, and deduct it from that. If it's just you, it doesn't really matter the structure, so long as the education is related to your business. Here's a good article on the matter: http://www.forbes.com/2010/02/16/tax-deduction-mba-education-personal-finance-robert-wood.html
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Wow. This gets complicated. And thanks for opening my eyes to the variables. I will let my accountant work this out. For now, it gives me a direction. Thanks much.
Educator, Esq: Follow up question: Is the following
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