Tax issue: Business Deduction for work related education expenses

I would say the question is whether the doctoral program will qualify you for a new trade or business.

If completing the Psy.D. program allows you to do things that you couldn't do without that designation, I'm afraid the cost of obtaining a Psy.D. wouldn't be tax deductible.

On the other hand, if you can provide similar services without the Psy.D. designation, but you can do your job better with a Psy.D., then you could argue that it would be tax deductible since it's improving your skills in your current trade or business.

I have never seen this rule applied to Psychologists. I have seen that the IRS has ruled that a practicing dentist is allowed to deduct the cost of a speciality program, and a psychiatrist in training is allowed to deduct the cost of psychotherapy that is a required part of his or her training.

I hope this sheds some light on this matter for you. I'm sorry I can't give you a more exact answer.

Andy has hit the nail right on the head. The pertinent question is does your schooling QUALIFY you for a new job, it is not relevant whether or not you are going to use these new qualifications. These questions come up frequently, but your situation is closer to the line. Here are some things that would not be OK:

1) You work as a paralegal for a law firm and they tell you need to go to law school to stay employed there. You can't use the deduction because this allows you to get a law license and work as an attorney -- a completely different job.

2) You work as a medical researcher and decide to get you MD to bolster your resume. Similarly, since the MD trains you for a new job, you can't deduct it even if you intend on keeping the same research job.

The common theme her is it's the training that matters, not your job. If the training qualifies you for the new filed, you're out of luck.

Some things that would generally be OK: A corporate executive getting an MBA, a teacher getting a masters. Interestingly, the tax regs specifically allow deduction of expenses for a teacher getting administrative credentials even though this is a new field. I guess they have a good lobby.

Interestingly, Publication 970 has the following example:
"While working in the private practice of psychiatry, you enter a program to study and train at an accredited psychoanalytic institute. The program will lead to qualifying you to practice psychoanalysis. The psychoanalytic training does not qualify you for a new profession. It is qualifying work-related education because it maintains or improves skills required in your present profession."

For you, the most relevant factor may be whether you are currently eligible to get a license to practice psychiatry. If you program permits you to get that license, you are probably out of luck.


These are the rules for business related educational expenses. You would still need to consider the lifetime learning credit and the tuition and fees deduction

Ed