It’s April 14th which means that taxes are due…tomorrow! If you are anything like us, your desk is probably covered in a pile of W2s, 1099s and 1040s and other tax documents that are all about 50% filled out.
There are two goals when it comes to taxes: get ‘em in and pay as little as possible.
Basically, you need to look for anywhere you can make deductions. Most people, and most millennials, can qualify for a bunch of deductions and tax credits you probably didn’t even know about.
In case you don’t know, a standard deduction is the dollar amount that the IRS lets each taxpayer deduct from his or her taxable income if they are working as a W2 employee. The amount of your standard deduction depends on your income, but it’s usually more than most people spend on work related expenses anyways so it’s the option you are most likely to use. However, if you think that you spent MORE money on work expenses this year than your standard deduction you will want to itemize your deductions, which basically just means that you make the IRS a list of all the things you spent money on so that they know why you are asking for MORE than the standard deduction.
Now, if you are freelance or self-employed, it’s a whole other ball of wax. In those situations you can actually deduct work expenses directly from your total income, thus reducing the total amount that you are taxed on. And one really big deduction you can get is for work-related education (like a Skillcrush class!).
Of course, like all things taxes, this isn’t as easy it sounds. You have to make sure you qualify for an education related deduction and then it is still a little tricky so pay attention or else you may miss out on a major tax break!
What you need to know
Generally, you can deduct education expenses if the studies maintain or improve your skills in your current business or if you’re required to take the courses to keep your current job you are employed at. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income.
If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This may reduce the amount of your income subject to both income tax and self-employment tax.
Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the Lifetime Learning Credit. You may qualify for these other benefits even if you do not meet the requirements listed above.
What you need to qualify
To claim a business deduction for work-related education, you must:
Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.
File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed.
Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education. Skills courses, personal development courses, and even certain activities not involving formal instruction may be considered education.
How do you know if you qualify?
You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:
The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer (ex: you are working as a designer and have to learn HTML & CSS to stay current).
There should be an asterisk next to “required” as it counts even if it is of marginal value. In fact, the way the tax law has been interpreted, “required” doesn’t really mean required. If a seminar on meditation helps make you a better manager, you can deduct it.
But even if it meets both tests above it will NOT qualify as work-related education if it:
Is needed to meet the minimum educational requirements of your present trade or business or (ex: you need an MBA to hold your position)
Is part of a program of study that will qualify you for a new trade or business.
So basically if your Skillcrush class or any other online class is helping you improve in your current job or with your own business then you can deduct it!
But if you were a lawyer and now you want to be a web developer, then this is not the year you are going to get tax benefits from education. So sorry :(