Year-End Tax Tips for Small Businesses: Save on Education Spending

As an investor relations professional who owns a financial services business, one of the facts of life in my profession is continuing education. The industry is continually changing, and, therefore, ongoing learning is part of the job description.

My industry and business are not unique in this respect. You and/or your employees may be attending classes, studying for needed credentials, or participating in continuing education programs to enhance skills or learn new ones. If so, you, your firm, and/or your employees may be able to take advantage of tax breaks to help pay for educational spending.

Now is the time to do some year-end tax planning to take advantage of valuable education-related tax deductions and credits. Here are three ways that small business owners and/or their employees can save on education spending.

Business Deduction for Work-Related Education Expenditures - Employers and Employees

If your small business made qualified expenditures in 2011 for education that maintains or improves skills needed in business or for education that is required by law, you may be able to deduct them on your tax return. Qualified expenses include tuition, fees, transportation (to get to and from classes or school), and some other expenses, and there is no limit on how much can be deducted for these items.

To qualify for this deduction, education spending must be to improve skills above a minimum level, and it must be related to the current job. Expenditures to achieve minimum educational requirements for a profession or job or to train for a new job or business are not deductible.

Employees can deduct their own qualified education expenditures on their personal income tax returns if they itemize deductions. The deduction is the amount of qualified expenses (as well as other miscellaneous itemized deductions) that exceed 2 percent of adjusted gross income.

Self-employed individuals may be able to deduct work-related education expenses directly from their self-employment income.

Employer-Provided Education Assistance

If your small business provided employees with up to $5,250 of assistance in 2011 for undergraduate or graduate study, whether it is work-related or not, it may qualify for a tax deduction. Qualified expenses include tuition, fees, books, supplies, and equipment and are tax-deductible (for both income and payroll taxes) for both the employee and the employer.

If a family member works for your small business while going to school, the business may be able to provide this tax-free educational assistance to him under certain circumstances.

Lifetime Learning Credit

If you took continuing education courses at a qualified institution to improve your work skills or learn new work skills in 2011, you may be able to take advantage of the lifetime learning credit. This is a tax credit of up to $2,000, rather than a deduction, which directly reduces your taxes. It is taken on your personal income tax return, not by your business, even though the courses you take may benefit your business by enabling you to obtain needed skills or acquire necessary credentials.


Determining which education expenditure tax benefits apply to you or your business can be tricky and will depend on your particular situation. Therefore, consult with your tax advisor about the best strategy for your business. Just don't overlook these valuable benefits, which can help your business while saving you money.

Sources: , Publication 970 (2010), Tax Benefits for Education , Employer-Provided Education Assistance

More from S. H. Wallick:
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Small Business 101: Should You Become a Consultant?
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