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:

• Create a plan that details costs and classes covered and the reimbursement process.
• Reimburse your employee for tuition costs on a tax-free basis (limitations may apply if the education is not “job-related”).
• Receive a tax deduction.

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.

Limitations depend on income level. For married couples, limitations start at an adjusted gross income level of $111,000, and the benefit phases out completely for married couples with adjusted gross income of $131,000 or higher. Check with your accountant to see which limitations apply to you.

How the Self-Employed Benefit

When you’re self-employed and often dealing with a tax rate of at least 40%, 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 $1000 for a seminar put on by a local law firm accredited for law coursework. By deducting the $1000 in course fees, he saves at least $425 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.