Claiming application expenses on your taxes

[lmm]

Can we claim Med school application expenses on our taxes? Does anyone know about this?

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[shimmer118]

A guy at my company sat down one year and read the entire tax code (he said that he likes doing that kind of stuff...??? ) and told me that if I got my boss to write me a letter saying that my MD degree would benefit the company in some way, then my application expenses, etc. could be claimed. I haven't tried it (but I should!). Anybody else know anything more specific?

 

[mpp]

Educational expenses that qualify you for a new trade or business are not deductible. For educational expenses to be deductible they must be required by your employer to keep your current job or can be used to maintain and/or improve skills at your CURRENT JOB. If the educational expenses qualify you for a new trade then they are not deductible.

I know that at a law firm the cost of taking the bar exam is not deductible since it would qualify the test-taker for a new trade: law practice as opposed to being a legal aide or clerk. I would assume the same would go for medical school expenses even if you are already employed in the medical industry. However, if you are a nurse, and take some classes to improve your nursing skills, those expenses are deductible (you must itemize to take these deductions). Even transportation expense from work to school are deductible (not from home to school however).

<a href="http://www.irs.gov/prod/forms_pubs/pubs/p50801.htm" target="_blank">Here</a> is the IRS publication that describes the educational expense deduction.

 

[Scooby Doo]

Damn you got me all excited! But then just punched the life out of me

 

[shimmer118]

Wow, so it is true??!?!?! (At my current job, to move up to the "senior level" you must have an advanced degree like an MD or PhD...so I could get the CEO to write the letter...ha!)
Thanks, mpp!

 

[mpp]

There's no letter to write. You would just itemize the deductions. If the IRS doesn't believe they will audit you.

However, I think you have misunderstood. I don't think any MD expenses would be deductible as those expenses are toward a new trade.

Lastly, realize these are just deductions, not tax credits. Unless the total of your itemized deductions exceed the standard deduction it is not in your interest to itemize deductions.

 

[Amy B]

Alright oh great computer wizard, master Scooby, how are you making those cool little moving icons? Are you forever going to keep them a secret???

 

[Scooby Doo]

Originally posted by Amy Beth:
•Alright oh great computer wizard, master Scooby, how are you making those cool little moving icons? Are you forever going to keep them a secret??? •••
open yourself up to private messages..or send me a private message and I'll tell you

 

[shimmer118]

mpp:

Nope, I read you loud and clear. The letter would be for me to keep in case an audit occurred (as "proof"). The MD degree does make one a doctor (obviously), but not all MDs head on to do hospital residencies, etc. Some take their degree and head back to the world of business as consultants (not many, mind you, but some do). So yes, the MD degree would help me become an MD, but at the company for which I currently work, one *must* have either an MD or a PhD to "move up the ladder." I could get my MD and come back to the company as a senior executive. I cannot do this with my current S.B. degree. In this case, the MD degree would be used to improve my skills for my current job (at least, as my company sees it).

Thanks for the input.

 

[shimmer118]

Before people flame me for wanting to be an MD for business purposes let me reassure you that I'm not planning on doing that. I actually want to be a physician (I've seen enough to know that business is not for me!!). I am just presenting my current situation as a hypothetical case.

 

[simpleton]

From the IRS link posted earlier:
"You can deduct the expenses for qualifying education even if the education could lead to a degree."
This statement seems to mean we can deduct the expenses???
What do you guys think?

 

[nochaser]

Okay, in my Quicken program, the MCAT and AMCAS fees are tagged as Education Expenses in my accounts, and when I load TurboTax, it will automatically import such expenses, calculate the deductions, etc. Should I go into Quicken and adjust these pre-med expenses by manually removing the tags, so that TT won't count them in the deductions? Will doing nothing send out a red flag???

 

[edmadison]

I must say that as an attorney I have found the quality of the legal advice on this website somewhat dubious. Allow me to clarify.

You cannot deduct the cost of your professional education EVER. Let me say that again: You can NEVER deduct the cost of a professional education. I does not matter if your employer says you must have the degree to be promoted or to keep your job. The tax regs are very clear about this. They say that education that will QUALIFY you for a new trade or business is not "qualifying education." It is irrelvent whether or not you intend to work in that profession.

Now if your education merely augments the skills you already have then you are OK. Thus, you can get an MBA and probably deduct it (probalby a Ph.D as well). An oversimplified way to think of it is that any education that qualifies you for a new professional license is not dedutable.

The cost of review classes for licensing exams are specifically noted in the regs as not deductable. As for the cost of taking the exam itself, since that is not "education" it is not deductable as an education expense; however, it may be deductable as a business expense (I'll have to check on that). The cost of your annual medical license is certainly deductable.

Remember that education expenses are only deductable to the extent that they exceed 2% of your income.

Finally, in case someone wants to be cute and try to deduct their tuition anyway. A 30,000 educational deduction will be flagged by the IRS computer and almost certainly get you audited. So you'll get to pay the taxes back with interest and penalty -- or worse.

Ed

 

[shimmer118]

Oh geez, I sure hope nobody would try to deduct his/her tuition!!! That would be the stupidest act ever (well, maybe not ever...but it sure ranks near the top).

I don't think any of us were claiming to offer legal advice, but simply discussing what we had read/heard regarding the matter. So as an "official attorney", Ed, thanks for clarifying. I appreciate it. It is too bad, however, that one seemingly has to be an attorney to read and understand documents meant for the "average" person. But that's an entirely different can o' worms...

 

[mpp]

Originally posted by nochaser:
•Okay, in my Quicken program, the MCAT and AMCAS fees are tagged as Education Expenses in my accounts, and when I load TurboTax, it will automatically import such expenses, calculate the deductions, etc. Should I go into Quicken and adjust these pre-med expenses by manually removing the tags, so that TT won't count them in the deductions? Will doing nothing send out a red flag???•••

Unless you have some complicated tax issues I would just ignore the TurboTax program and fill out a simple 1040EZ and take the standard deduction.

 

[edmadison]

They were probably tagged in quicken because you chose to characterize them as such, not realizing the tax implications. I doubt quicken knows what "AMCAS". If you took a vacation and used the checkbook description for "educational expenses" in quicken the same thing would probably happen.

Ed

 

[lake show]

i agree with mpp. unless you are making lots of money right now with a lot of captial gains, i don't see how a couple thousand dollars of application expenses will exceed the standard deduction. i tried to calculate all my deductions last year, and it wasn't even close to the standard figure. at our age (assuming you're in your early to mid 20's), i wouldn't even bother with itemizing.

 

[mpp]

Originally posted by corleone:
•i agree with mpp. unless you are making lots of money right now with a lot of captial gains, i don't see how a couple thousand dollars of application expenses will exceed the standard deduction. •••

And as we've been saying, those application expenses are not deductible anyway...

 

[edmadison]

Just to make a quick correction, capital gains have nothing to do with deductions. You can factor in capital gains and still take the standard deduction.

Ed

 

[lake show]

edmadison, thanks for the correction. i've actually never really researched itemizing deduction because there's no reason to on my part. oh the day when i'll be making enough (and not using h&r block online) to do so...