What Expenses Can Be Deducted(p193)

If your education meets the requirements described earlier under Qualifying Work-Related Education, you can generally deduct your education expenses as business expenses. If you are not self-employed, you can deduct business expenses only if you itemize your deductions.

You cannot deduct expenses related to tax-exempt and excluded income.

The following education expenses can be deducted.

• Tuition, books, supplies, lab fees, and similar items.
• Certain transportation and travel costs.
• Other education expenses, such as costs of research and typing when writing a paper as part of an educational program.

You cannot deduct personal or capital expenses. For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. This amount is a personal expense.

If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to the reimbursement.

Your employer agrees to pay your education expenses if you file a voucher showing your expenses. You do not file a voucher, and you do not get reimbursed. Because you did not file a voucher, you cannot deduct the expenses on your tax return.

If your education qualifies, you can deduct local transportation costs of going directly from work to school. If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home.

You go to school on a temporary basis if either of the following situations applies to you.

1. Your attendance at school is realistically expected to last 1 year or less and does indeed last for 1 year or less.
2. Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Your attendance is temporary up to the date you determine it will last more than 1 year.

You do not go to school on a temporary basis if either of the following situations apply to you.

1. Your attendance at school is realistically expected to last more than 1 year. It does not matter how long you actually attend.
2. Initially, your attendance at school is realistically expected to last 1 year or less, but at a later date your attendance is reasonably expected to last more than 1 year. Your attendance is not temporary after the date you determine it will last more than 1 year.

If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days.

Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight.

You regularly work in a nearby town, and go directly from work to home. You also attend school every work night for 3 months to take a course that improves your job skills. Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. This is true regardless of the distance traveled.

Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. You can deduct your transportation expenses from your regular work site to school and then home.

Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school.

Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school.

If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. The standard mileage rate for miles driven during 2010 is 50 cents a mile. Whichever method you use, you can also deduct parking fees and tolls. See chapter 26 for information on deducting your actual expenses of using a car.

You can deduct expenses for travel, meals (see 50% limit on meals, later), and lodging if you travel overnight mainly to obtain qualifying work-related education.

Travel expenses for qualifying work-related education are treated the same as travel expenses for other employee business purposes. For more information, see chapter 26.

If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal activities with time spent on educational activities. If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location.

John works in Newark, New Jersey. He traveled to Chicago to take a deductible 1-week course at the request of his employer. His main reason for going to Chicago was to take the course.

While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day.

Since the trip was mainly for business, John can deduct his round-trip airfare to Chicago. He cannot deduct his transportation expenses of going to Pleasantville. He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities.

Sue works in Boston. She went to a university in Michigan to take a course for work. The course is qualifying work-related education.

She took one course, which is one-fourth of a full course load of study. She spent the rest of the time on personal activities. Her reasons for taking the course in Michigan were all personal.

Sue's trip is mainly personal because three-fourths of her time is considered personal time. She cannot deduct the cost of her round-trip train ticket to Michigan. She can deduct one-fourth of the meals (subject to the 50% limit) and lodging costs for the time she attended the university.

Dave works in Nashville and recently traveled to California to take a 2-week seminar. The seminar is qualifying work-related education.

While there, he spent an extra 8 weeks on personal activities. The facts, including the extra 8-week stay, show that his main purpose was to take a vacation.

Dave cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar.

Certain cruises and conventions offer seminars or courses as part of their itinerary. Even if the seminars or courses are work-related, your deduction for travel may be limited. This applies to:

• Travel by ocean liner, cruise ship, or other form of luxury water transportation, and
• Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in chapter 1 of Publication 463.

You can deduct only 50% of the cost of your meals while traveling away from home to obtain qualifying work-related education. You cannot have been reimbursed for the meals.

Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit.

You cannot deduct the cost of travel as a form of education even if it is directly related to your duties in your work or business.

You are a French language teacher. While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. You chose your itinerary and most of your activities to improve your French language skills. You cannot deduct your travel expenses as education expenses. This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities.

You cannot do either of the following.

• Deduct work-related education expenses as business expenses if you benefit from these expenses under any other provision of the law, for example, as an education credit (see chapter 35).
  
• Deduct work-related education expenses paid with tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualifying Work-Related Education Expenses, below.

If you pay qualifying work-related education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. You must reduce the qualifying expenses by the amount of any tax-free educational assistance you received.

Tax-free educational assistance includes:

• The tax-free part of scholarships and fellowships (see chapter 1 of Publication 970),
• Pell grants (see chapter 1 of Publication 970),
• Employer-provided educational assistance (see chapter 11 of Publication 970),
• Veterans' educational assistance (see chapter 1 of Publication 970), and
• Any other nontaxable (tax-free) payments (other than gifts or inheritances) received for education assistance.

Do not reduce the qualifying work-related education expenses by amounts paid with funds the student receives as:

• Payment for services, such as wages,
• A loan,
• A gift,
• An inheritance, or
• A withdrawal from the student's personal savings.

Also, do not reduce the qualifying work-related education expenses by any scholarship or fellowship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualifying work-related education expenses.