Discussion:Training Expense

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Discussion Forum Index --> Basic Tax Questions --> Training Expense


Discussion Forum Index --> Tax Questions --> Training Expense

Anchorman (talk|edits) said:

14 November 2008
Have a new accounting client, SMLLC, who started a Home Inspection business. Was a handyman. Went to a technical school and took a "Career Training" course to learn the trade. Borrowed from Sallie Mae for the course, $2,800 (at 17%...sheesh...but I digress). Later took another $2800 loan for start up costs such as tools, equipment, software, licensing, etc.

Does this original $2800 in education/training qualify for tax deduction? Should it be expensed first year, or capitalized? Could it qualify as part of $5,000 start up costs tax wise?

TAXBILLY (talk|edits) said:

14 November 2008
Neither. It would be eligible for the Lifetime Learning Credit if the trade school qualifies.

taxbilly

EZTAX (talk|edits) said:

14 November 2008
Agree with Tbilly - sounds like training for a new career which is not deductible but might be eligible for the education credit.

Taxea (talk|edits) said:

15 November 2008
It would be eligible for the life-time credit if the school is accredited...if not it may qualify as a seminar/training expense. taxea

Blrgcpa (talk|edits) said:

16 November 2008
No. Courses to train for a new position or career are NEVER deductible. The second loan of $2800. for start up expenses is the cost of start up.

Pink Pearl (talk|edits) said:

16 November 2008
Barb...are you sure????

For purposes of the Lifetime Learning Credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution to acquire or improve job skills

Pink Pearl (talk|edits) said:

16 November 2008
maybe you meant a deduction...sry

EZTAX (talk|edits) said:

16 November 2008
Pink - any classes taken are eligible for the lifetime learning credit if the institution is eligible. Acquire and improve job skills is for a deduction.

CarlLaFong (talk|edits) said:

17 November 2008
I would deduct it under 195. While costs of acquring the minimum skills for a trade or busines are not deductible, I would argue that the minimum skills to runs a home inspection business are the abilities to read and write.

Taxea (talk|edits) said:

17 November 2008
CarlLaFong...I think you would lose that arguement. Wouldn't minimum skills include having at least a basic knowledge of building, electrical, plumbing, foundation and many other things? I sure wouldn't hire a home inspector who told me his only skills (Knowledge) came from being able to read an write.

I stand by my original post...the school must be acredited or the cost should be expensed under seminar/training on the Sch C. with no education credit applying.taxea

RoyDaleOne (talk|edits) said:

17 November 2008
Wow, I never through of tools, equipment, etc. as start-up costs.

Let me see, under Section 195 elect to deduct the the tools, etc., as start-up costs.

Well maybe, doing the Section 195 deduction avoids the Section 179 income limitation. Right?

A Schedule C deduction for my JD, I don't think so. However, Reg 1.162-5;

(1) MAINTAINING OR IMPROVING SKILLS. The deduction under the category

    of expenditures for education which maintains or improves skills 
    required by the individual in his employment or other trade or 
    business includes refresher courses or courses dealing with current 
    developments as well as academic or vocational courses provided the 
    expenditures for the courses are not within either category of 
    nondeductible expenditures described in paragraph (b) (2) or (3) of 
    this section. 

Two tests are used to determine whether the education qualifies the taxpayer for a new trade or business: the objective test and common sense approach. Basically, a comparison of the tasks associated with the taxpayer's new and previous positions.

The objective test states that the court should look only to whether the education qualifies the taxpayer for the practice of a new trade or business.

The "common sense approach" states that the court should determine whether the education qualifies the taxpayer for significantly different tasks than previously qualified to perform.

The phase new trade or business is not clearly, defined.

Smokeytax (talk|edits) said:

17 November 2008
I think CarlLaFong does have a really interesting argument.

Under Revenue Ruling 99-23, expenses to determine WHETHER to enter or acquire a new business, and WHICH new business to enter or acquire are deductible as startup costs. The ruling refers to the desirability of encouraging the formation of new businesses.

Of course, if education expenses were deductible, there would be a huge hit in terms of tax revenues (we can't have that!), so there's an inevitable conflict between the treatment of education expenses and startup costs, and a line to be drawn somewhere.

Clearly getting a bachelor's degree in English for a student who wants to look into becoming a writer can't be deducted as a business expense under current law, but I think there's a good argument that the home inspection courses are very much different.

I think we can reasonably argue that they pass the "whether or which" test and therefore are deductible startup costs. Or, they could even be deductible as ongoing training for someone in the handyman business.

Any other thoughts, anyone?

Death&Taxes (talk|edits) said:

17 November 2008
I'm all for what Taxea wrote, having met Anchorman's client ostensibly. The guy who inspected my house should have taken these courses; what else do you say when you find the house is not grounded, among other crimes, like a house that is sinking into its center, so that when you crack an egg in a pan, you'd best get ready to catch it as it rolls down hill toward you.

CrowJD (talk|edits) said:

17 November 2008
Don't to forget to warn the customer about bats. A month after moving in, I had a bat swipe a Bloody Mary right out of my hand on the back deck. There must have been some alcholics in the cave, because there was not a drop of blood in the drink.

EZTAX (talk|edits) said:

17 November 2008
Taxea - in order to write-off as training/seminar the education cannot qualify a person for a new job. Do you agree with CarLaFong that this does not constitute training that qualifies the taxpayer for a different job?

EZTAX (talk|edits) said:

17 November 2008
Smokey - I can see where you are going with you reasoning but the law says that training for a new profession does not qualify so I think this negates your arguement.

Blrgcpa (talk|edits) said:

17 November 2008
Look at it this way: The courses to become an accountant and review courses to take the CPA or EA exams are not deductible. The CPE courses to mauntain and improve your skills are deductible.

The same with the handyman. In order to become an inspector, he had to learn more about inspecting and the various parts of the construction industry that he didn't deal with previously.

This is not a business expense.

The deduction for life time learning credit is another matter.

CarlLaFong (talk|edits) said:

18 November 2008
In my state, there are no minimum educational requirements for home inspectors. Basically, anyone with a clipboard and a pencil can legally operate a home inspection business. There are lots of cases that say an accountant cannot deduct his university tuition for Intermediate Accounting since such a class would prepare him for a new profession (CPA-Auditor). I am not sure that this is really true today since not all CPA's are licensed to do audits.

Taxea (talk|edits) said:

18 November 2008
Blrgcpa...I disagree that EA prep courses cannot be taken by a current preparer. Taking the course does not mean one HAS to take the test. I took the course to improve my current prep skills and it was the quickest way to learn the most information in the least amount of time. Sure beat taking individual CPE classes for each separate subject.

EZTAX...no I don't agree. What I do agree with is that if the school is not accredited the education credit cannot be taken. I learned that every penny out of pocket for a business is expense-able in one way or another. You have to look at the taxpayer as a business owner, not an employee looking for a new job. I say the training qualifies either as startup or as seminar/training expense.taxea

RoyDaleOne (talk|edits) said:

18 November 2008
Well, this portion of Code Section 195(c)(1)(B)

(B) which, if paid or incurred in connection with the operation

         of an existing active trade or business (in the same field as 
         the trade or business referred to in subparagraph (A)), would be 
         allowable as a deduction for the taxable year in which paid or 
         incurred.

to me precludes the inclusion of the above reference educational costs as a start-up cost, unless, such costs, would qualify as on going educational costs, an oxymoron or contradictory position. A start-up expenditure is an expense that would be allowable as a deduction in connection with the operation of an existing trade or business in the same trade or business.

I am not pontificating on a handyman, who desires to expand his current business and takes training to enhance his skills, and as result, becomes a home inspector. Would the answer be different if the handyman was licensed to build a home?

Southparkcpa (talk|edits) said:

18 November 2008
Good discussion, what if this were an S Corp and the training were to increase lines of business during these down times? if large enough company, I would deduct outright as training.

Kevinh5 (talk|edits) said:

18 November 2008
I wrote off all of the cost of the courses I took to become an EA. I also wrote off all of the courses I took when I was studying for the Tax Court Exam. All of the courses helped me improve my skills in my present field - tax return preparation and representation. Albeit as a non-EA my ability to represent was extremely limited.

CrowJD (talk|edits) said:

18 November 2008
Tax is one of the few fields that you can be in the field before you know what you're doing. A very simlar thing happened when they got rid of Jr. Varsity football. Of course, some have leveled the charge that I am often found in yon field "without a clue", as the youngsters put it.

True, I might have scored a few touchdowns for the other side, but I can only point to the estimable Wright brothers as proof that one does not have to comprehend something in order to really mess it up.

Or, to put it another way, former CIA director George Tenet won the Presidential Medal of Freedom having had 911 occur on his watch. (Some scalawags have suggested that this was to keep him forever mum on what he had told the President prior to the event).

Smokeytax (talk|edits) said:

18 November 2008
I think what we really need to do is emphasize the facilitating business growth angle and de-emphasize any similarity to college education, which we know if it were to be made fully deductible would break the budget bank. (Personally making college deductible would be OK in my book. No one has asked me my opinion yet, but I'm keeping my phone line open in case the call comes in.) Where we're supposed to draw the line is really difficult to determine with any certainty.

Perhaps a good point to look at is whether the courses are in a college setting and lead to college degree, rather than being more trade oriented.

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