The MBA, a Little Less Taxing

(page 2 of 2)

For 2008 and 2009, students attending eligible institutions in the Midwestern disaster areas can claim double the normal education credits ($4,000 instead of $2,000 for the maximum Lifetime Learning Credit), and room, board, and books all qualify as education expenses. The student must be enrolled in a school in the disaster areas, which were established in 2008 after severe storms, tornadoes, and floods ripped through portions of 10 Midwestern states. But the student does not have to live there, which means online MBAs or executive MBAs who travel but are enrolled in programs in those designated areas may qualify for the credit, writes King. Education credits, including the AOC and Lifetime Learning credits, are claimed on Form 8863.

Student Loan Interest Deduction

Student loan interest is deducted as an adjustment, and you can claim deductions on loans issued to you, your spouse, or dependents. The maximum amount of student loan interest you can claim in a year is $2,500. This is also dependent on your income. For 2009, the deduction phases out for married taxpayers filing jointly with modified adjusted gross income of $120,000 to $150,000 and $60,000 to $75,000 for single and head of household filers, writes King.

Section 529 Funds

Another way to use educational expenses to reduce your tax burden is through the use of a Section 529 plan, also known as a Qualified Tuition Program (QTP). Like IRAs, which allow workers to save tax-free for retirement, 529 plans allow parents to save tax-free for future educational expenses. As long as the cash is used for qualified expenses, withdrawals are also tax-free.

Many parents use 529 plans to save for a child's college expenses, but they can be used by anyone, even those contemplating business school for themselves. In addition to tuition and fees, allowable expenses include software, computers, Internet service, and other educational expenses incurred by students. Some restrictions apply. For example, Charney warns that parents who live in New Jersey and have a child in college in California, for example, cannot include their New Jersey wireless Internet expenses because the student is not actually using that service.

Job Hunt Expenses

There are strict rules about when you can deduct expenses for the job hunt. Still, you might just fit the bill. If you are looking for a job for the first time, you cannot deduct job hunting expenses, such as unreimbursed travel, writes King. But most MBA students do not fall into that category. Those who are returning to the same trade or business they were in prior to B-school are eligible for the deduction, writes King. Career switchers and those who have been out of work for a few years or more are not.

If you are eligible for the deduction, there's one proviso. On the tax return, job hunting expenses get added to all other miscellaneous itemized deductions. If the total exceeds 2% of adjusted gross income (AGI), you can deduct the excess. For example, someone with an AGI of $50,000 would need to have miscellaneous itemized deductions (including job hunting expenses) of more than $1,000. If the expenses totaled $1,500, the taxpayer could take a $500 deduction.

Although tuition is costly, there are some advantages to going back to school for a graduate business degree. "For someone going to get an MBA, it pays twice," says Charney. "First, you get an education, which is an investment in your future, and then there are the tax benefits and deductions." Consider your tax breaks, adds Charney, as another source of financing for your degree.

Di Meglio is a reporter for BusinessWeek.com in Fort Lee, N.J.

Business Exchange

Track and share business topics across the Web.