Maybe you’ve just completed a degree or a professional certification course. Perhaps you’ve completed a licensing exam or just attended a seminar related to your career. At this point, you may be asking yourself, “Are professional certificates tax-deductible?” Unless you’ve just become a Certified Public Accountant, chances are that this tax law question will stump you! While we aren’t tax professionals—and this post should not be relied upon for any tax, legal, or accounting advice—here’s some basic information to help you determine if your credential fees are deductible. Of course, be sure to consult your own financial advisors before engaging in any transaction.
Tax Deductions, Tax Credits, and Standard Deduction
For those of us not pursuing a certification in tax accounting, a few definitions are in order. Tax deductions are items you can claim on your year-end taxes that decrease your taxable income base. While not the same as a tax credit, tax deductions serve a similar function by decreasing the amount of taxes you owe. Tax credits are deducted from your bottom line. For instance, if you owe $8,000 in taxes, but have a tax credit of $500, you would only be obligated to pay $7,500. On the other hand, tax deductions decrease your taxable base: If you make $40,000 per year as taxable income and are eligible for a tax deduction of $500, that means you are taxed as if your income was only $35,500.
There are a variety of tax deductions a taxpayer can claim. Common deductions include charitable giving, some medical expenses, and interest on mortgages. There are numerous legal stipulations that decide whether or not an expense can actually qualify for a deduction, so it’s advisable to understand the relevant tax code fully before proceeding.
The process of accounting for any and all deductible expenses through the tax year and claiming them on your end-of-year taxes is known as itemizing your deductions. Most taxpayers, however, do not itemize their deductions. Instead, they choose to accept the standard deduction. This standard deduction is a fixed dollar amount set by the IRS annually that most taxpayers are qualified to deduct from their taxable income. For instance, in 2023, the standard deduction for married couples filing jointly is $27,700, and for singles (or married individuals filing separately) it’s $13,850.
The benefit of the standard deduction is that it avoids the complexities of itemizing your deductions. Most taxpayers are eligible to accept the standard deduction and don’t need to go through the trouble of tabulating all of their expenses, interest, and donations throughout the year. Additionally, many people find that the standard deduction is higher than their itemized deduction. Not only is it easier, but the standard deduction is also potentially a more generous deduction to a taxpayer. If, for instance, you file as a single, and estimate your itemized deductions would be around $8,000, it would be in your best interest to accept the standard deduction of $13,850; you would get an additional $5,850 in deductions!
Qualifications for a Tax Deduction
Now, for the question you’ve likely come to this blog to have answered: Is my professional education tax-deductible? Perhaps you have a good understanding of deductions and are choosing to itemize your deductions this year. There are a few things you’ll need to consider to determine whether your professional certification expenses, exam fees, or courses are tax-deductible. Whether you can deduct these costs from your year-end taxes will depend on a variety of factors. It’s important to remember that these criteria are guidelines and not professional tax advice. Enlist the services of a professional to ensure you’re complying with all relevant tax codes!
Per direction by the IRS, you may be eligible to deduct professional and educational expenses if they meet one of two criteria. First, the expenses for your education and/or development must be related to your present work. For instance, if you take an online course to maintain or improve your data analytics expertise, and you’re currently employed as a data analyst, your expenses meet this criterion: It may be that your online course is tax-deductible! However, if you are currently employed as a data analyst, and you purchase a study book to prepare to take the MCAT exam, you likely cannot claim the study materials tax-deductible: You are preparing for future work unrelated to your current employment.
If this first criterion does not apply to your situation, check to see if you meet the second one. If your professional expenses meet at least one of these categories, you could qualify. The second is this: The training in question must be required by your employer or by law to keep your current salary, status, or job. A major caveat here is that this education cannot be a part of a program to qualify you for a new type of work. For instance, if you currently work as a salesperson for a company and have been working with your employer to move into a graphic design role—and if they require you to complete an associate’s degree in graphic design to move into this role—you cannot claim this as a deduction. Though your employer requires it, you are getting training for a new role in a new field of work. However, if you are a real estate agent, renewing your real estate license can be tax-deductible. This is because a real estate license is required by law to operate as a real estate agent or broker.
In summary, though there are many nuances to the tax code, keeping a few principles in mind will help you determine whether your expenses are tax-deductible. It’s undoubted that the hard work you’ve put into your recent degree, license, or certificate will pay off in many areas of your career—it may just pay off on your taxes, as well. Want to display your professional certification? Order a custom certificate frame today!