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ScottyMacEsq, Attorney
Category: Legal
Satisfied Customers: 16332
Experience:  Licensed Texas General Practice Attorney
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I want to be able to pay for my education through my business,

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I want to be able to pay for my education through my business, thus be a tax deduction. The education I receive (a full degree program) is related to my business and will help me to grow my business. How may I best structure/organize my business (not formed yet) to benefit from tax deductions for my personal education.

Also, how may my business receive a tax deduction to pay for others' education if they contract to work in my business for a given amount of time?

ScottyMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

ScottyMacEsq :

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.

ScottyMacEsq :

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.

ScottyMacEsq :

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.

ScottyMacEsq :

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:

ScottyMacEsq :

Hope that clears things up a bit. If you have any other questions, please let me know. If not, and you have not yet, please rate my answer. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, XXXXX XXXXX luck to you!


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.

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