Don’t Learn About Nondeductible Education Expenses the Hard Way
Q I was recently hired to start a new division for a small company--essentially starting up a new company. I’m planning to get a master of business administration degree, under one of the popular programs to earn an MBA while you’re fully employed, in order to gain the skills I need to build this new business properly and help it thrive. My employer is too small to be able to help me with the considerable expense of this program. My question: Is there any way it could be tax-deductible?
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A Considerable expense is right. You could be talking about an investment of $25,000 or more, plus two to three years of your time. On the other hand, this degree could qualify you for bigger and better things--and there’s the rub.
Normally, education costs are considered personal (read nondeductible) expenses. But expenses for education that allows you to maintain or improve the skills required in your business, or that is mandatory for you to keep your current job, can be deductible.
Notice the wording above--it’s key. You can’t deduct courses that prepare you for another line of work, or that are required for you to meet the minimum educational requirements for your job. Some IRS employees once tried to write off law school, arguing that their new-found understanding of the law allowed them to be better tax employees. They lost that battle, because their degrees qualified them for a whole new profession--something the agency suspected was their goal all along.
As you can probably guess, this is a huge gray area of tax law. If you get audited, you might be in for a fight. The higher the expenses, especially relative to your income, the fiercer the fight could be. It would make sense to consult with a tax professional who can review your job in detail and discuss your chances of successfully defending these expenses in an audit.
If you do decide to deduct your education expenses, remember that they are normally deducted on Schedule A as an employee business expense; only the amount greater than 2% of your adjusted gross income can be deducted.
Even if you can’t deduct your MBA training, you might be able to qualify for the Lifetime Learning Credit. You can take the credit for as much as 20% of your tuition and fees, up to a maximum of $1,000 a year, if your adjusted gross income is less than $40,000 if you’re a single filer or $80,000 if you’re married and filing jointly. The credit phases out for people with higher incomes, and it disappears completely at $50,000 for singles and $100,000 for marrieds. It’s a drop in the bucket compared to the expense of getting an MBA, but at least it’s something.
Getting Good Trust Advice
Q You wrote a terrific column on why living trusts are advisable, except that the price you quoted is too low; lawyers offering living trusts for $1,000 are vastly underpricing the product. A typical living trust case requires preparation of not only a living trust, but also pour-over wills, a marital property agreement, and durable powers of attorney for financial matters and for health care. In addition, care must be taken to fund the trust; that is, the residence and other property has to be re-titled to name the trust as the owner. Many practitioners who offer low-cost service neglect to do these transfers or simply tell their clients to do them. Most clients have no idea how to complete and file a deed, so the transfer doesn’t occur.
The price for a complete service usually starts at $3,000, and may increase depending on how much one-on-one counseling is required.
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A Thanks for writing. Another lawyer wrote to tell me that every $1,000 living trust he’d seen was “crap,” and then went on to disparage the work of colleagues who charged much more. Beating up on one another seems to be a favorite attorney pastime.
Actually, there are indeed reputable lawyers out there preparing living trusts for $1,000, but you’re right that they require the client to do some legwork. The transfers and title changes you mention are important; if they’re not done, or if the trust is improperly drafted, the estate could wind up in probate after all--which is the very thing a living trust is intended to avoid.
Filing deeds and changing the name on each of your financial accounts isn’t rocket science, but it is a hassle, which is why some people prefer to have the lawyer take care of those details.
No one with a large or complicated estate, or who wants to delegate the legwork, should expect to pay less than $2,500 for a complete living trust package; but those with small estates, simple needs and the willingness to do some of the work themselves often can find a better deal.
Consumers should, however, watch out for living trust mills--companies that sell living trusts largely as a ruse to get their hands on your assets or to sell you insurance.
The average do-it-yourselfer also should think long and hard about using a kit. Nolo.com, the Berkeley-based do-it-yourself legal publisher, offers a pretty good version, but estate planning is rather like brain surgery--it’s pretty tough to get it right if you don’t do it all the time. And seemingly small screw-ups can have major repercussions down the road.
Typically, the best place to get a living trust is from a lawyer who specializes in estate planning. It may cost you more upfront, but it should save hassles and costs in the long run.
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Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
