 and welcome to this session in which we will discuss education expense as it relates to self-employed and employee. The reason is this, if you have your own business and you incur education expense, you will be able to deduct those education expense assuming they qualify on schedule C4 adjusted gross income. If you are an employee you would deduct those expenses on schedule A from AGI. This is an important distinction. Now also keep in mind that for schedule A those deductions are suspended from the year 2018 to year 2025. In other words, you cannot take them but they do exist. They are suspended from 2018 to 2025. Now in the prior session we looked at how transportation, how travel expense differ between if you are a self-employed versus an employee. In this session we'll focus on education expense. Let's go ahead and get started. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead start your free trial today. We're going to discuss taxpayer education expense incurred by a self-employed. Self-employed means a person that is running his or her own business. They work for themselves. Those expenses, those education expenses are deductible when the expenses are aimed at maintaining or enhancing an existing skills. So think of this. Assuming I'm a CPA and I want to pursue a graduate advanced taxation certificate. Well, this is to enhance existing skills. So I'm growing my business. I'm a CPA and having this advanced taxation skills, it's going to grow my business. Or assume you are a consultant and you pursue an MBA. Well, if you're a consultant, if you're a business consultant and you want to increase your business skills, an MBA will serve you. In other words, it will enhance your existing skills. Or what we can do sometime rather than college education, we can take business seminars as long as those business seminars are aimed at maintaining or enhancing existing skills. They are deductible. Also, something we have to do, we have to take those courses or those seminars or those conventions, attend those conventions to meet specific legal or regulatory requirement to retain the job. A classic example is something we called in the accounting world and CPA world as CPE, continuous professional education. And CPE exists for accounting, for lawyers, for MDs. In other words, you are required to take certain amount of courses every year, which is called continuous professional education credits, to maintain your professional certification. So it's a legal requirement that's necessary to retain your job. Also, those courses, whether they are undergraduate courses, college courses or seminars or some sort of a convention, they are deductible. So when I attend those CPEs in various towns in Philadelphia and Harrisburg and Pittsburgh, for my continuous professional education, I can deduct those expenses. Education expenses are not deductible if they are incurred solely for the sole purpose to meet the minimum educational standard. A good example will be getting your 150 college credit to sit for the exam. So let's assume right now I have a tax practice. Let's assume I have a tax practice. I'm not a CPA. I decided to pursue my CPA. Before I can sit for the CPA, I need an additional 30 college credit to meet the 150 credit requirement. Now, those undergraduate credit, they are required to meet the minimum educational standard for the CPA. Guess what? Those are not education expenses for business purposes. You'll be able to take advantage of the cost somewhere else, but they're not a business expense. Also, a CPA review courses. You may take a CPA review course like with Becker, Gleam, Roger or with Farhat, for example. Well, those are not business expenses if you are studying, if you are studying to meet the minimum educational standard, the minimum educational requirement. Also, if the educational expenses, if you are taking courses with the intention of qualifying for a new trade or business, think about it. If you're self-employed and you're taking courses in another field, let's assume you're an accountant, you're a CPA, but you're taking courses in data analytics because you want to move into the data analytics industry or artificial intelligence or cryptocurrency. If those courses are preparing you, your intention to move into a new trade or business, then they cannot be a business expense. That's not a business expense. Business expenses is when they are aimed at maintaining or enhancing your business skills, currently business skills, or meet the minimum specific legal requirement in your job, which is in your industry. This means if the expenses are incurred to gain the necessary qualification to pursue a different profession or venture, they would not be eligible for this deduction. Now, when these cases go to court, it gets very, very interesting. Why? For example, a law degree for a CPA is considered a new venture. For example, many CPAs, they like to get a law degree to expand their practice. According to court interpretation, getting a law degree is a separate field than a CPA. So when you get a law degree, if you're a CPA, you cannot consider this as a business expense. Well, you could have other tax educational tax credit, educational deduction, but not not business education expense, not the business education expense. So what kind of expenses when they are allowed can be deductible? Well, tuition, books, supplies, transportation, travel, including lodging and meals for executives, executives program, those are all if you qualify, if you qualify as a business expense, you can deduct them. Basically, it's a business expense. It's a business expense, any cost that you incur in that process, it's deductible. Now, bear in mind, as I mentioned, I'm going to mention again, there are numerous tax provision that pertain to education. So Congress passed many, many laws and incentives to encourage education as a valuable social objective. So although you cannot deduct those college courses for business purpose, you can deduct them for many other purposes. Okay, these incentives can take the form of income execution, you can execute, execute certain income. If you have a scholarship for education, you can get deductions, both for and from AGI, and various credits. I'm going to list some of them, but those are not, those are not everything. For example, Congress allow you to save money for education, savings loan. There's the qualify tuition deduction, which is you can get $4,000 deduction for AGI. There are certain limits. The reason I'm mentioning the number because I'm going to be using it in the next example, you can deduct your interest on the student loan. You can have American opportunity credit and lifetime credit, which is our valuable tax credit. If you get a scholarship, you can execute that money, educational assistant plan, and many others. So although, as a self-employed, you cannot deduct a college course, well, you might be able to pick it up somewhere else. Maybe you can pick it up as a deduction, qualify tuition deduction, or you can pick it up as a tax credit. Well, you're not out of business basically, you're not out of luck. You could always get something for it. Example, Emily is a full-time high school teacher. So notice she is not self-employed. She is an employee. The school district where she works recently initiated a policy requiring all of its teachers to start working on a master's degree. So Emily spent the summer out of town in a nearby capital city taking graduate courses. And Emily incurred the following expenses, tuition, books and course material, lodging, meals, laundry and dry cleaning, campus parking. And Emily drove 2,000 miles for education expenses. Assume the standard mileage deduction happens to be 67 miles, 67 cents per mile, just made it up. What are her deduction for AGI? What are her deduction from AGI? Well, let's be careful here. The first thing we have to understand, she's not self-employed. She is an employee. Okay? So if she's an employee, she does not have a business expense. So forget everything that I taught you about business expenses. Okay? Because she worked for the school district, she's an employee. Now, what can she get? Can she get any deduction for AGI? Believe it or not, assuming she meet the limit. She doesn't exceed the limit. Assuming she's single and she doesn't exceed the limit for qualified tuition deduction, qualified tuition deduction. Remember, I told you there are many program. This is one of them. Assuming that's the case, she meets the limit, she can deduct as an employee $4,000 of the $7,500, she can deduct $4,000 for AGI, basically as an adjustment. Well, that's great, $4,000. So she can reduce her taxable income by $4,000. What can she do with the rest? For AGI, nada, nothing. Now, as an employee, what happened is this, assuming she's not reimbursed, she can deduct other expenses. This should be $1,200, not $12,000 of book and course material, $1,200. What she can do for the other expenditure, she can deduct them from AGI. Remember, so what happened is this, if she took $7,500, the tuition minus the $4,000, what she left with is $3,500 of unused tuition. Then she can use the books, $1,200 books and material, lodging $1,700, meals $2,000, laundry, campus parking $2,000 times $0.67 and she can add them up and take those as a deduction on schedule A subject to 2% limitation. So they have to be more than 2% of adjusted gross income. But again, she can't do that unless we are in the year 2026, because this deduction is suspended between the year 2018 and 2025, because we had a new tax law where those deductions are not allowed for an employee. So all what she can do is deduct for AGI, $4,000. Now also, the other option, she wanted to take a look, see if she qualified for a tax credit. And if the tax credit, which is lifetime tax credit, is a better option. We learn about that in a separate recording. But the question here is deduction for AGI, not tax credit. Now let's assume, let's just change this example and assume Emily is a CPA and she runs her own company, she's self employed, and she incurred those, those courses as part of an advanced tax certificate, tax certificate. So she's taking courses and she incurred those expenses. Well, if she's a CPA and the program that she's enrolled in enhances or maintained her existence skills, which is again, a graduate degree or a graduate certificate indexation will be considered that, then all of those expenses will be considered business expense deducted on schedule C as a self employed. So it's totally different. It will be deduction for AGI. But as an employee, the only thing she can take is, and I just introduced this, qualify to wish in deduction, just to kind of make the point. Otherwise, as an employee, your deduction is from AGI. What should you do now? Go to Farhat Lectures and work MCQs, multiple choice questions, that's going to help you do what? Understand this concept better, whether you are a CPA candidate, enrolled agent, accounting student, invest in yourself. Good luck, study hard, and stay safe.