What Educational Expenses Are Deductible as Business Expenses?

If your education meets the requirements described earlier under Qualifying Work-Related Education, you can generally deduct your educational expenses as business expenses. If you are not self-employed, you can deduct business expenses only if you itemize your deductions.

You cannot deduct expenses related to tax-exempt and excluded income.

Deductible expenses.   The following educational expenses can be deducted.

1. Tuition, books, supplies, lab fees, and similar items.
2. Certain transportation and travel costs.
3. Other educational expenses, such as costs of research and typing when writing a paper as part of an educational program.

Nondeductible expenses.   Educational expenses do not include personal or capital expenses. For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. This amount is a personal expense.

Unclaimed reimbursement.   If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to the reimbursement.

Example.   Your employer agrees to pay your educational expenses if you file a voucher showing your expenses. You do not file a voucher and you do not get reimbursed. Because you did not file a voucher, you cannot deduct the expenses on your tax return.

Transportation Expenses

If your education qualifies, you can deduct local transportation costs of going directly from work to school. If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home.

Temporary basis.   If your attendance at school is realistically expected to last (and does in fact last) for 1 year or less, you go to school on a temporary basis (unless there are facts and circumstances that would indicate otherwise).

If your attendance at school is realistically expected to last for more than 1 year or if there is no realistic expectation that the attendance will last for 1 year or less, the attendance is not temporary, regardless of whether it actually lasts for more than 1 year.

If your attendance at school initially is realistically expected to last for 1 year or less, but at some later date the attendance is realistically expected to last more than 1 year, that attendance will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It will not be treated as temporary after the date you determine it will last more than 1 year.

Attendance at school on a temporary basis was formerly defined as attendance on an irregular or short-term basis (generally a matter of days or weeks).

You can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, for any year in which you used the former definition of attendance on a temporary basis. However, you generally must file the amended return within 3 years from the time you filed the original return or within 2 years from the time you paid the tax, whichever is later.

Deductible expenses.   If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days.

Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight.

Example 1.   You regularly work in Camden, New Jersey, and go directly from work to home. You also attend school every work night for 3 months to take a course that improves your job skills. Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. This is true regardless of the distance traveled.

Example 2.   Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. You can deduct your transportation expenses from your regular work site to school and then home.

Example 3.   Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school.

Example 4.   Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school.

Using your car.   If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. The standard mileage rate for 2002 is 36½ cents per mile. Whichever method you use, you can also deduct parking fees and tolls. See Publication 463 for information on deducting your actual expenses of using a car.

Travel Expenses

You can deduct expenses for travel, meals (see 50% limit on meals, later), and lodging if:

1. You travel overnight to obtain qualified education, and
2. The main purpose of the trip is to attend a work-related course or seminar.

Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. For more information, see Publication 463.

You cannot deduct expenses for personal activities such as sightseeing, visiting, or entertaining.

Mainly personal travel.   If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal activities with time spent on educational activities. If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location.

Example 1.   John works in Newark, New Jersey. He traveled to Chicago to take a deductible 1-week course at the request of his employer. His main reason for going to Chicago was to take the course.

While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day.

Since the trip was mainly for business, he can deduct his round-trip airfare to Chicago. He cannot deduct his transportation expenses of going to Pleasantville. He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities.

Example 2.   Sue works in Boston. She went to a university in Michigan to take a course for work. The course is qualifying education.

She took one course, which is one-fourth of a full course load of study. She spent the rest of the time on personal activities. Her reasons for taking the course in Michigan were all personal.

Her trip is mainly personal because three-fourths of her time is considered personal time. She cannot deduct the cost of her round-trip train ticket to Michigan. She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university.

Example 3.   Dave works in Nashville and recently traveled to California to take a 2-week seminar. The seminar is qualifying education.

While there, he spent an extra 8 weeks on personal activities. The facts, including the extra 8-week stay, show that his main purpose was to take a vacation.

He cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar.

Cruises and conventions.   Certain cruises and conventions offer seminars or courses as part of their itinerary. Even if the seminars or courses are work related, your deduction for travel may be limited. This applies to:

1. Travel by ocean liner, cruise ship, or other form of luxury water transportation, and
2. Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in Publication 463.

50% limit on meals.   You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying education. You cannot have been reimbursed for the meals.

Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit.

Travel as Education

You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business.

Example.   You are a French language teacher. While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. You chose your itinerary and most of your activities to improve your French language skills. You cannot deduct your travel expenses as educational expenses. This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities.

Expenses Relating to Tax-Exempt and Excluded Income

The following discussions explain how to treat the costs of qualifying education that are related to tax-exempt or excluded income from scholarships, veterans' educational assistance, and the Education Savings Bond Program.

Scholarships

If you receive a tax-exempt scholarship, you must subtract the amount of the scholarship from the cost of your qualifying education.

Example.   Your tuition for qualifying education is $8,000. You receive a tax-exempt scholarship of $6,000 to help pay the tuition. You can include only $2,000 ($8,000 - $6,000) as deductible educational expenses.

Part of scholarship is tax exempt.   If only part of your scholarship is tax exempt, you subtract only the tax-exempt part from the cost of your qualifying education.

Example.   Your tuition for qualifying education is $8,000. You receive a $6,000 scholarship of which $4,000 is tax exempt and $2,000 is taxable. You can include only $4,000 ($8,000 - $4,000) as deductible educational expenses.

Part of tuition qualifies.   If only part of your tuition is for qualifying education, you subtract only part of the tax-exempt scholarship from the cost of your qualifying education.

Example.   Your total tuition is $8,000. The tuition for the courses that are qualifying education is $3,200. Your tax-exempt scholarship is $6,000. To determine the part of the scholarship that must be subtracted from the cost of your qualifying education, multiply the scholarship ($6,000) by a fraction. The numerator (top number) of the fraction is the tuition for qualifying education ($3,200), and the denominator (bottom number) is the total tuition ($8,000).

$6,000	×	$3,200	=	$2,400
		$8,000

($3,200 - $2,400) as deductible educational expenses.

More information.   For more information on scholarships, see Publication 520.

Veterans

Any educational assistance payment you receive from the Department of Veterans Affairs (VA) is tax exempt. This includes payments for living expenses.

VA programs that pay educational expenses only.   If you receive payments under a VA program that pays only for educational expenses, such as tuition, books, and similar expenses, you must subtract the part of the VA payment that applies to qualifying education from the cost of your qualifying education.

Example.   Your tuition is $1,000 and all classes are qualifying education. You receive a $780 educational assistance payment from the VA that is solely for educational expenses. You can include only $220 ($1,000 - $780) as deductible educational expenses.

VA programs that pay living expenses and educational expenses.   If you receive payments under a VA program that pays for both living expenses and educational expenses, you must subtract from the cost of your qualifying education only the part of the VA payment that applies to educational expenses for qualifying education.

Generally, 50% of the VA payments are for subsistence or living expenses. For married veterans, the percentage is higher.

Example.   Your tuition is $1,000 and all classes are qualifying education. You receive a $780 educational assistance payment from the VA. Under this program, $390 of the payment is for living expenses and $390 is for educational expenses. You can include only $610 ($1,000 - $390) as deductible educational expenses.

VA payments used for both qualifying and other education.   If you use a VA payment for educational expenses to pay for both qualifying education and other education, you must subtract only part of the payment from the cost of your qualifying education.

Example.   Your tuition and fees for three courses are $1,500. Only two of the three courses are qualifying education. The two courses cost $1,000. You receive a $780 educational assistance payment from the VA under a program that covers tuition and fees only. The payment does not include any amount for living expenses. To determine the part of the VA payment to subtract, multiply the payment ($780) by a fraction. The numerator (top number) is the cost of the qualifying education ($1,000) and the denominator (bottom number) is the total cost of your education ($1,500).

$780	×	$1,000	=	$520
		$1,500

deductible educational expenses.

Education Savings Bond Program

You may be able to exclude from your gross income all or part of the interest you received on the redemption of qualified U.S. savings bonds if you pay qualified higher educational expenses during the same year. This exclusion is known as the Education Savings Bond Program.

See chapter 8 of Publication 970 for more information on the Education Savings Bond Program.

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