“It’s a toad, dude, a toad!”
(A slightly stoned Alaskan fishing guide yells out as I land a huge silver salmon)
I recently had the good fortune of being invited by an old friend to stay at his cabin in Alaska and to fish for silver and sockeye salmon. It was a fantastic trip, and we had a great time and caught lots of fish. It was nice break from El Paso’s summer heat and from the daily routine of running a law practice.
Upon return from my brief vacation, I was disheartened by local news:
– El Paso Electric announced that its 2nd quarter profits soared to $36 million. (You will no doubt remember that EP Electric is seeking yet another large rate increase after securing a significant rate increase last year.)
— The City of El Paso and El Paso County are both seeking another large property tax increase. (A friend of mine recently told me the he was placing his house for sale because he could no longer afford the property taxes.)
I really struggle to understand these news items. How is it possible for a community as poor as ours to be paying such high electric rates to a company that uses its monopoly to make huge profits and then demands more? How is it possible that El Paso City Council and County cannot have the political discipline to say “no” to the sea of endless requests for additional funding?
Sadly, there’s no great short-term solution other than to demand better community and business leaders who will be accountable to the people they serve.
Certainly one long term solution is for us to become more educated as a society. If we are better educated, we become more knowledgeable about the way our world works. If we are better educated, the statistics show that our income levels are enhanced. If we are better educated and are able earn better incomes, we become less impacted by politicians’ poor decisions.
The Internal Revenue Code actually encourages us to become better educated by allowing us to deduct our educational expenses with the hope of improving our skills and our careers and enhancing our incomes.
- Deducting Education Expenses
The Internal Revenue Code allows the deduction of education expenses which “maintain or improve skills required by the individual in his employment or his trade or business… “.
So, if you are an employee, you can deduct educational expenses that help you in the performance of your duties, including expenses which help you improve your skills in that same employment. For instance, if you are a plumber or a welder or carpenter and you go to training seminars that teach you how to improve or expand your skills, those expenses may be deductible on your tax return.
However, you must be cautious because the Internal Revenue Service in its regulations has created a distinction between improving or expanding your skills and developing a new skill or trade. The IRS argues that expenses to establish a new business or a new career are not deductible. For example, if you are a carpenter and you want to become a doctor, those expenses of becoming a doctor would not be related to your old business or employee status and thus not deductible.
- What about education expenses within a particular field?
However, the IRS’s distinction becomes less clear when someone is engaged in a field of work and seeks additional education in order to advance in that field. For example, if you are a respiratory therapist and you want to become a physician, would that be categorized as improving your skills or pursuing a different career? Both are related to the field of medicine.
The IRS has by regulation provided the example that a classroom teacher can seek additional education to become a principal and that is not considered entering a new field and thus the expenses may be deductible.
Likewise the Tax Court has ruled that a sales person selling dental equipment could deduct expenses to obtain an MBA. The MBA would help him advance within the company. This degree would be a significant benefit to that worker and a real incentive to undertake the advanced education.
- Tax Credits
There are also a number of possible tax credits (not deductions) for qualifying tuition and related expenses for you and for dependents. I’ll discuss these tax credits in a future article.
Federal tax law is complex, and the deductibility of education expenses will depend on the facts and circumstances of each case. If you have an interest in undertaking additional education to improve your job skills or to advance within your field of employment, there may be substantial tax benefits available to you if properly structured. Get with your tax adviser for more complete information.
I wish I could deduct the money I paid my fishing guide. It was certainly better spent than on increased property taxes and electric rates.
David Leeper is a Board Certified federal tax attorney with 38 years of experience. He can be reached at 915-581-8748, by email at firstname.lastname@example.org, or visit leepertaxlaw.com