Getting Educated Again

Today TaxMama hears from Lisa in California, who tells us, “ I decided to return to nursing. I am wondering, what are my tax deductions, if any? When can I start to claim them for my re-education? Costs will include refresher classes, books, etc. licensing fees, job interview fees, mileage, physicals, labs, certifications etc?”

Dear Lisa,

Good for you. That sounds like a good move. And with today’s demand for nursing skills as the population continues to get grayer, you should have no problem finding work.

As to your education, the bad news is that you can’t deduct the costs as employee business expenses, since you’ve been out of the field for so long. At this point, it’s re-education, or treated as a new career. Our legislators, in their infinite wisdom, do not encourage people to build new skills so they always remain useful in the job market.

The good news is, there’s a better way to use some of the expenses. Under the new American Recovery and Reinvestment Act of 2009, for 2009 and 2010, there is a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable.
http://finance.senate.gov/press/Bpress/2009press/prb021209.pdf

It’s not really clear if the other education credits have been replaced by the new one. The old credits are/were worth $1,850 for the Hope Credit and $2, 000 for the Lifetime Learning Credit . http://www.irs.gov/publications/p970/

The education deduction of $4,000 on the front of your tax return may still be available, too. Those would be adjustments to income. But I have to admit that I am not certain.

As to your interview expenses, they would be deducted as Miscellaneous expenses. But they are rarely higher than 2% of the adjusted gross income on your joint tax return. But when you add in licensing, physicals, etc., those combined might generate a deduction.

On the other hand, if you can re-activate your license before taking all the expensive classes, and do a little work through a nursing service first, then the classes you take after you start working will be deductible as employee business expenses.

So, here’s the strategy, first use any allowable expenses to grab the “American Opportunity” tax credit of up to $2,500 for the first year. Then, use the rest of the costs as Miscellaneous expenses after you start working.

And remember, you can find answers to all kinds of questions about education deductions and other tax issues, free. Where? Where else? At TaxMama.com

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