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Peter Griesch
Peter Griesch,
Category: Tax
Satisfied Customers: 324
Experience:  Tax Counsel at AIG, Inc.
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I am wondering if I should deduct $35k in Executive MBA

Customer Question

I am wondering if I should deduct $35k in Executive MBA expenses as unreimbursed business expense on form 2106?
Total tuition on 1098-T was $39k in 2014. Already plan to take $4k tuition education deduction as AGI is just under $130k married filing jointly.
What is IRS stance on deducting MBA as business expense?
How likely is it to trigger an audit?
Is there a need - or a way - to include a statement on the return explaining why the deduction is being taken?
Submitted: 1 year ago.
Category: Tax
Expert:  Peter Griesch replied 1 year ago.

Before finalizing my answer: were you full time, what was your occupation prior to the degree?

Customer: replied 1 year ago.
I worked full time as a director prior to & during the MBA. The 'ordinary and necessary' part doesn't sound right as IRS publication 970 addresses deductibility of education as a business expense. My situation meets the deductibility requirements but I am asking about risk & prior experience with MBA deductions?
Expert:  Peter Griesch replied 1 year ago.

Section 162(a) provides a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” The expense needs to be an ordinary and necessary expense - - meaning customary for that type of business. In the corporate field, an MBA is customary.

If you were a director prior to and during your entering the MBA program, then you meet the "carrying on" a "trade or business." Ordinarily, tuition is not deductible, for example, if you were a full-time student obtaining a degree to get employment. It seems that you were obtaining a degree to enhance a business you were already working in.

Treas. Reg. Section 1.162-5(a) provides that a taxpayer may deduct educational expenses as "ordinary and necessary" business expenses if the education maintains or improves skills required by the individual in his or her employment or other trade or business.

I assume this program did this for you as a director.

The above said, you should qualify for the deduction.

Likelihood of being audited: That's very difficult to predict. I would have to know all claims made on your return to assess whether there's a high likelihood of being audited. If you are, you should qualify for the deduction, so the audit risk would not be from the expense, though it could be from another deduction or item on your return.

Hope this helps.

Expert:  Peter Griesch replied 1 year ago.

Are there any additional matters I can assist you with?