Tax deductions and IT training

It's getting to be that time of year again....

Just out of curiosity, has anyone deducted their out of pocket IT training expenses on their taxes. Like if you went and took a class that was relevant to your job. I know that you can claim that kind of stuff under Misc. Deductions - Pub 529 - Work Related Education.

See http://www.irs.gov/pub/irs-pdf/p529.pdf - page 8

There's a formula for how it's calculated AGI * 2% and I think anything over that 2% can be deducted.

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erpadmin

kiki162 wrote: »

It's getting to be that time of year again....

Just out of curiosity, has anyone deducted their out of pocket IT training expenses on their taxes. Like if you went and took a class that was relevant to your job. I know that you can claim that kind of stuff under Misc. Deductions - Pub 529 - Work Related Education.

See http://www.irs.gov/pub/irs-pdf/p529.pdf - page 8

There's a formula for how it's calculated AGI * 2% and I think anything over that 2% can be deducted.

*Disclaimer, I'm not a tax lawyer, accountant, or IRS employee. I won't be held responsible if anything I say gets you audited by the IRS.*

Now that I have that out of the way, if work paid for your training, you can't deduct it yourself. You are correct that if you're under the 2% of your AGI, then it pretty much won't matter if you do or don't.

TurboTax (Premier) helped me out a lot with figuring all that stuff out. Everything I bought was done online so I already had receipts and such. In fact, I even got to deduct both my phone and tablet because I primarily do use them for work.

I do suggest that anyone who wants to get *cute* with deductions to get Audit protection. I never did until this year, since I added stuff like Technet Subscriptions, Union Dues, and other professional expenses. I just filed today and I'm hoping my refund will give me some nice Yankee money for my upcoming Atlanta trip. I get a discount on premier since I'm a Vanguard customer (it's where my IRA is.)

Again though...see my original disclaimer.

kiki162

What class(es) did you take if you don't mind me asking? And how much are you looking at getting back from that.

So basically as an example if your AGI is $80K*2%=$1600 and if you spent $6000 in courses, you should get to deduct $4400. Now question is do you get that $4400 back or is it a percentage of that?

I wasn't aware on the other professional expenses that you could deduct those as well. I guess it pays to read up on stuff like that.

Forsaken_GA

kiki162 wrote: »

So basically as an example if your AGI is $80K*2%=$1600 and if you spent $6000 in courses, you should get to deduct $4400. Now question is do you get that $4400 back or is it a percentage of that?

No. Deductions are not credits. Credits will get you refunded the full amount, deductions just lower your tax liability.

So if you deduct that $4400, it means you don't pay taxes on it.

So let's say you made 50,000 and you're at a 25% tax rate. Your total tax liability would be 12,500. So lets say you have 26 paychecks and you're having $480 withheld each check for your taxes. That'll come out to right around what you owe in taxes.

Now, same scenario, but you deduct the $4400. Instead of having 50,000 taxable income, you now have 45600. So your total tax liability is only 11,400. But you paid in 480 a paycheck, which is 12480, so you paid in too much. You would get a refund check for $1,080.

To take it further, same example, but lets say that instead of paying in 480 a check, you paid in 400. At 50,000 in tax liability at a 25% rate, you're short $2100, so come April, you'd pay that in taxes. If you deducted the $4400, yo'd only owe $1,020.

*Note: These are very simplified examples, to conceptually convey how deductions effect your tax bill. I'm obviously not accounting for scenarios of when you should deduct, vs. when you should take the standard deduction, etc, and so on.

erpadmin

kiki162 wrote: »

What class(es) did you take if you don't mind me asking? And how much are you looking at getting back from that.

So basically as an example if your AGI is $80K*2%=$1600 and if you spent $6000 in courses, you should get to deduct $4400. Now question is do you get that $4400 back or is it a percentage of that?

I wasn't aware on the other professional expenses that you could deduct those as well. I guess it pays to read up on stuff like that.

Well I went to school for the entire 2011 year, so my tution was used for the American Opportunity credit (which you can only get for your bachelor's and even then for only four years. I was on year two for mine and it will be the last year I can get that credit.) I also did buy stuff I legimitately used for work and utilized "Section 179" for my deductions. Books, equipment, etc. that I bought for "IT" were included.

Turbo Tax will really help you figure all that stuff out. There was no "reading up" on anything, except to make sure I could survive an audit if I had to, if only to cover my behind.

Last year, I had to consult with a CPA because I needed his advice on a house fire. Prior to seeing him, I turbotaxed just to see how much I would get if I didn't include the fire. When I went to the CPA, he pretty much said not to bother since I had insurance. Everything else he did, he pretty much did no better than I did. In fact, he tried to get me to pay more because of the "qualified relative" provision. I told him that a relative doesn't need to be related to me, per the IRS and I had used my fiancee as a dependant for years without any headaches. She doesn't work and I provide for her financially. I told him flat out if he wanted me to pay him (about double to less than triple what I normally pay,) he was going to file this with me being HOH instead of single.

Basically, if one can read and they don't have anything ridiculous to do insofar as tax prep, TurboTax is MORE than enough to get you what you need.

kiki162

Erp....the American Opp. Credit is a little different situation because it's going for a degree which I've used in the past untill the GI Bill finished up paying for my degree, then I couldn't use it anymore. Needless to say Turbo tax is a great product and I've used it for years. From what I understand in my situation it just changes my tax liability, and I might be able to get a little bit out of it...but probably not enough to recoup the money like the American Opp. Credit. Section 179 might apply if I had bought an MSDN subscription, or books, but I don't think IT training would apply in that case.

Accounting was and still is the worst class for me.

Devilsbane

erpadmin wrote: »

Basically, if one can read and they don't have anything ridiculous to do insofar as tax prep, TurboTax is MORE than enough to get you what you need.

This is what I've done for the past couple years. You can also get multiple uses out of it, so I take turns with my parents on who buys it and then we can go over and have a tax party.

Forsaken_GA

kiki162 wrote: »

Erp....the American Opp. Credit is a little different situation because it's going for a degree which I've used in the past untill the GI Bill finished up paying for my degree, then I couldn't use it anymore. Needless to say Turbo tax is a great product and I've used it for years. From what I understand in my situation it just changes my tax liability, and I might be able to get a little bit out of it...but probably not enough to recoup the money like the American Opp. Credit. Section 179 might apply if I had bought an MSDN subscription, or books, but I don't think IT training would apply in that case.

Accounting was and still is the worst class for me.

Well, it all depends, deductions are a tricky thing. Basically, everyone gets a standard deduction, I believe this year it's $5800 if you're filing single. So if your itemized deductions do not exceed that, you don't itemize, you take the standard deduction. You can't take the standard deduction and then take the education deduction along with it.

So if that $4400 is the only deduction you can itemize, then don't even worry about it, you still need another $1400 in deductions to make it even worth considering, depending on how you're filing. If you're married filing jointly, or filing head of household, it's even tougher to make it worth something.

And even if you can itemize above the standard deduction, you have to consider the scale. If I'm filing single, and I itemize out to $5900, then great... I'm $100 over, so I save 25 bucks. That's not enough to be worth my time of pulling all the documentation together, and run the additional risk of an audit, so for myself, I'd take the standard deduction.

TurboTax will sort it all out for you though

erpadmin

kiki162 wrote: »

Erp....the American Opp. Credit is a little different situation because it's going for a degree which I've used in the past untill the GI Bill finished up paying for my degree, then I couldn't use it anymore. Needless to say Turbo tax is a great product and I've used it for years. From what I understand in my situation it just changes my tax liability, and I might be able to get a little bit out of it...but probably not enough to recoup the money like the American Opp. Credit. Section 179 might apply if I had bought an MSDN subscription, or books, but I don't think IT training would apply in that case.

Accounting was and still is the worst class for me.

I was mentioning what I did for my taxes, and didn't mean for you to apply that for your own situation.

As Forsaken has said, itemizing will only make sense if it will exceed the standard deduction. Typically, the one way that happens for most people is if they pay a mortgage.

Turbotax really has gotten better at helping out with deductions though. I never bothered with Section 179 prior to this year. But all you have to do is plug in numbers, and you will know if you can itemize or not.

powerfool

I have used TurboTax since 2005, and it is great. If you regularly use it, it will carry over your information from year to year so you don't necessarily have re-input data.

There are a LOT of considerations for writing off education related expenses, especially when you are pursuing a degree.

-You can take the deduction "above the line" which lowers your Adjusted Gross Income (AGI), which has its own benefits.
-You can write off some or all of your student loan interest "above the line".
-You can take eligible credits (best options for most that are eligible).
-You can claim it as an unreimbursed business expense in some cases.

The credits are great because each qualifying dollar of credit is a dollar less in taxes that you have to pay. The other deductions lower your taxable income which means that you save whatever percentage your marginal tax rate would have been for each dollar (10%, 15%, or the unlikely 25% that hardly anyone pays - 97% of all taxpayers pay 12% or less in federal income taxes... and about half pay none at all). The best reason to claim an unreimbursed business expense is if you attend a rather expensive school in which case you can write off much more than the other options (which have relatively low limits), or you were not seeking a degree.

Oh, and I Am Not A Lawyer (IANAL) or a tax professional.