Tax Court Says RN can Deduct Graduate Degree in Full
After we have been working awhile in our profession, some of us begin thinking about finishing a bachelor's degree or starting a master's. With some master's programs costing up to $20,000 a year for full time study, this can be an expensive endeavor without any kind of assistance. Most educational expenses are tax deductible, however the deductions are often limited and contingent on one's income level. Ultimately when pursuing a more expensive program, the tax deductions pales in comparison to the costs.
There is an alternative provision in the Internal Revenue Code that allows a professional to deduct the costs of continuing education, seminars, workshops and coursework if the content maintains or enhances the skills of the professional in their current job. This can be a welcome relief when pursing an additional degree, but there is a catch - the education cannot qualify the student for a new line of work. This is where various jobs in the healthcare industry can present conflicting situations as there are many avenues one can pursue after obtaining an entry level position. Such was the case of Lori Singleton-Clarke-Clarke. She had completed a bachelor's degree in nursing and worked her way into a quality control management position that would normally require an advanced degree. Additionally, Ms. Singleton-Clarke worked in more than one hospital in this capacity. As she progressed in this role, Ms. Singleton-Clarke recognized that an MBA in Healthcare Management would not only help her performance, but it would garner more respect from the physicians and other professionals she encountered in her job. The expenses for the program were significant and on the advice of her tax preparer, she deducted roughly $15,000 of expenses for tuition, travel and other related costs for the MBA program as an employee business expense on her income tax return. A few years later, the IRS audited her return and denied these deductions. Armed with documents and proof that she was entitled to the deductions, Ms. Singleton-Clarke took the case to tax court and won.
In reviewing Ms. Singleton-Clarke's work history, the court cited the fact that the education, "did not prepare [Ms. Singleton-Clarke] for a new trade or business because she was already established in her trade or business." As mentioned earlier, this is an important element of deducting educational costs as an employee business expense vs. a more limited educational expense. Despite the fact that different jobs are still performed in a clinical setting, the roles of the new job may be completely different. For example, a respiratory therapist obtaining an RN is in reality, an entirely different profession. Similarly, a bedside nurse working towards a degree to qualify as a physician's assistant is also a new line of work. More subtle role changes would not qualify as well. Advancing from a bedside nurse to nursing administrator may be a nursing career, but the responsibilities are significantly different. In the case of Ms. Singleton-Clarke, even though her education prior to the MBA would not normally qualify her for the position that she held, the fact that she was well established in the profession and recognized as a competent candidate at multiple facilities with the limited educational background was sufficient to rule against the IRS.
With this in mind, that bachelor's or master's degree may be fully deductible not just in regard to tuition, but for books, travel, media usage and other related expenses. If you are considering an advanced degree, be sure to consult with your tax professional to see which method is best for you.
About the author:
Joseph Smith is an IRS Enrolled Agent and former travel respiratory therapist whose firm (TravelTax LLC) provides tax preparation and audit representation for the mobile professional. He is a regular contributor to HealthcareTraveler, Locum Life and a speaker at the annual Travel Medical Professionals Convention. For more travel nursing tax advice, visit TravelTax.com.
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