Tuesday, February 13, 2007

Deducting MBA Tuition as Work-Related Education

At the Santa Clara University Life Long Network Yahoo! Group, Alexey Orlovsky posted the following about claiming MBA tuition as a tax deduction:

Hi everybody,

I was wondering, have anyone tried deducting complete MBA tuition as work-related education?

The benefit is obvious – rather than deducting only up to 4000 (as adjustment for AGI), you got to deduct all of your yearly tuition and mileage for the travel to school from work at 48 cents per mile as an itemized deduction, which results in a few thousand dollars shaved off your tax bill.

This is somewhat tricky and is sometimes challenged by IRS, but it is completely legal as long as you follow the guidelines of IRS publication 970 section 12: http://www.irs.gov/publications/p970/ch12.html

The criteria for eligibility are rather strict, but among all types of professional education, part-time MBA seems most matching these criteria, e.g.:

Also, an excellent review with the reference to recent case law in CPA Journal:

Does anybody have a first-hand experience or knowledge about this deduction?

In my particular case, I am hesitant because of two reasons:
(1) I am not sure if MBA education qualifies for me as a software engineer as “maintaining or improving skills needed in your present work”
(2) For how long should I stay within software development business after graduating MBA program so that IRS cannot challenge my return on the grounds that MBA “is part of a program of study that will qualify you for a new trade or business” (they seem to be doing this often)? Is this 3 years after which they typically do not audit returns? This may be too long – after all, why taking an MBA to stay within your old non-business trade.

I think this discussion may be of general interest to the LLN group.


If you have any advice or comments about this issue, you can respond to Alexey's post.