Question

Michael has a very successful business as a financial consultant. Michael attends the following seminars:

"Zen your way to riches" $800

"Backyard Gardening" 50

"Computer Marketing Tools" 200

"Passing the Legal Bar Exam" 500

"Beating the Market" 300

How much can Michael deduct as business education expenses? Explain the basis for your answer to receive full credit.

Answer 1

The education expenses are deductible only if certain conditions are fulfilled :

1) The person should be in self-employment or a government official or a qualified artisit or an individual with disability.

2) The education expenses incurred should be related to the field of work and it should improve or enhance the skills required for the present work.

3) The education expenses should not result in qualification for a new job. It should enhance only that skills of the current position

Computuation of allowable education expenses of Mr. Michael :

1) "Zen your way to riches" : This expenses incurred is purely to enhance the personal way of living and cannot be attributed to the work. Hence, NOT ALLOWED as deduction.

2) "Backyard Gardening" : ​​​​​​​Gardening expenses are incurred in the personal interest and is not related to the field of work. Hence, NOT ALLOWED as deduction.

3) "Computer Marketing Tools" : Michael is a financial consultant, and is in self-employment. The education related to the Marketing tools will ehance the skills of the current position. Hence, the amount of $200 incurred can be ALLOWED as a deduction.

4) "Passing the Legal Bar Exam" : Michael is currently employed as a financial consultant. Education related to "Passing the Legal Bar Exam" will result in a qualification of a new job. Hence, the amount is NOT ALLOWED as a deduction.

5) "Beating the Market" : The expenses incurred will enhance the current skills of Michael as a financial consultant. Hence, the amount of $300 can be ALLOWED as a deduction.

Note : Since, it is given that Michael has his own business, it is clear that Michael is in self-employment.

Total allowable deduction : $200 + $300 = $500