When Extra Credit Equals Tax Credit

Your toga-partying, test-cramming days were years ago. So why should you care about tax credits for education? Because if you’re doling out some dollars for keeping up your skills (or your employees’), there are likely tax benefits to you or your company. 

How Employers Benefit 

Encouraging your employees to boost their skills with continued education impacts your bottom line in more ways than one. Employees who receive assistance covering educational costs are more motivated and loyal. They do not have to pick up the costs as income. They apply their new skills to help you improve your business. And the costs are tax deductible to boot. It’s a win-win. 

It’s simple: 

How Individuals Benefit 

If your employer does not provide an educational expense reimbursement plan, you can still receive a tax benefit in the form of the Lifetime Learning Credit. Whether you are pursuing a degree in your field or simply taking a class to help you improve your skills, you can take a credit for up to 20% of up to $10,000 in tuition costs and related expenses, for a maximum credit of $2,000. 

Limitations depend on income level. In 2023, for example, a married couple’s credit limitation starts at an adjusted gross income level of $160,000, and the benefit phases out completely at adjusted gross income of $180,000 or higher.  As the rules for a single taxpayer are different, and the phaseout amounts are adjusted annually, call Cray Kaiser to see which limitations apply to you. 

How the Self-Employed Benefit 

When you’re self-employed and dealing with a tax rate as high as 37%, investing in your education can benefit your bottom-line not only by improving your skills but also with some welcome tax deductions. As a self-employed taxpayer, business-related educational costs can be deducted directly against your business income. How does that impact your tax situation? Let’s look at an example of an attorney who is in the highest tax bracket. An attorney pays $1,000 for a seminar put on by a local law firm accredited for law coursework. By deducting the $1,000 in course fees, he saves at least $370 in federal taxes. That’s a tax deduction with some impact! 

While a Rodney Dangerfield-style deep dive back into your college days may not be in your future, hopefully you or your employees will take some classes along the way. You’re no doubt aware of the many benefits of updating and improving your skills and those of your team members. Be sure to consult with your accountant to understand how to take advantage of the tax benefits of continued education as well. 

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