Posted by: Louis Lavelle on April 10, 2009
By Anne VanderMey
Is MBA tuition tax-deductible? That’s the $15,000 question that’s been plaguing students, accountants, and the court system for years. It’s an important debate this year in particular, when students need all the breaks they can get.
There’s some good news from tax specialist Robert Willens , an adjunct professor of finance at the Columbia Business School, in his recent paper arguing that the deductions are legitimate. But there’s still a lot of room for case-by-case legal interpretation.
Of course, you should consult an accountant to see if you qualify, but here are some of the basic rules:
Your education is deductible but only insofar as it’s required for “carrying on” your current profession. So, if you’re a lawyer taking refresher legal courses, you’re probably in the clear. If you’re in marketing, getting an MBA to become an investment banker, you’ll run into trouble. School-related expenses should “maintain and improve” skills needed in your current field.
Furthermore, those expenses should be “ordinary and necessary” to your performance in your present job. It’s not enough that they’re simply beneficial. “As an accountant, I can’t go out and take a class in French cooking,” says Mary Wilson, a principal at CPA firm Rothstein Kass — even if clients love French food.
Your education also should not qualify you for a “new trade or business.” So, even if you think a culinary degree might further your accounting career, you won’t be able to deduct it because it qualifies you for a new position, in this case, French chef. This is a legal grey area for MBAs, because the degree is widely applicable to different trades.
Don’t be too deterred though, students have successfully made the case before.