Is an MBA Education Tax Deductible?
Making the decision to pursue an MBA (Master of Business Administration) degree is not only a significant time commitment but a financial sacrifice as well. Luckily, the federal government provides you with an array of tax deductions and credits that can reduce your tax bill for the expense of receiving a business school education.
When you sit down to prepare your tax return, you should also gather documentation that provides the amount of MBA tuition you paid during the year. This is because up to £2,600 of your tuition can be deducted on your return. This deduction is available to all taxpayers, regardless of whether you claim the standard or itemised deduction. Unlike some of the other educational tax benefits, you cannot include the cost of your books and supplies in the deduction. Also keep in mind that if your income is too high during the year, you may not be eligible to claim the deduction. However, the income limitation depends on your filing status. Generally, the income limit is higher when you file a joint return.
You can claim the tuition deduction regardless of whether you pay your MBA tuition with your own money or funds you receive from a student loan. However, if you do take out a student loan, you can also claim a deduction for the interest payments you make during the repayment period. Currently, the maximum annual deduction is £1,625, but this too has income limitations that depend on your filing status. One thing to keep in mind is that the IRS only allows you to deduct the interest on student loan funds you actually use to pay your school expenses such as tuition and books. For example, if you take out a £6,500 student loan this year and after paying all your school expenses you have £650 left that you use to take a vacation, you can only deduct interest payments you make on £5,850 for that particular loan.
As an alternative to the tuition deduction, the lifetime learning credit is available to MBA students. The credit provides you with a dollar-for-dollar reduction of your tax bill as opposed to a reduction of your taxable income that a deduction provides. Essentially, you can save a maximum of £1,300 per year on your taxes for the tuition and fees you pay to the business school. This can also include the cost of books and supplies if you are required to pay the school directly for them. To receive the maximum credit, your expenses must be at least £6,500 for the year since it is calculated as 20 per cent of your costs.
When you claim the tuition deduction, you must also prepare Form 8917 and submit it with your tax return. But if you choose the lifetime learning credit, then Form 8863 is required instead. No additional forms are necessary in any year you deduct student loan interest. However, you should fill out the relevant worksheet in the instructions to your return to help you calculate the appropriate deduction amount.