Education

[Gretel]

I have a situation with an interesting twist.

Partnership (2 partners) operate biz, one (A) is mainly doing office work the other (B) has all the knowledge to do the work in the shop.

B wants to get out and A wants to continue biz as sole proprietor. He needs to go to school to do this. Normally if you go to school and that education qualifies for a new trade you cannot deduct. Since this is an existing biz, does this change it and the expenses are deductible?

[WhiteOleander]

I would say it is new education. "A" knows how to run the office, but not how to make the widgets. So learning to make widgets would be a new trade.

[Nashville]

Yes But

I agree with Oleander's assessment, but she did not state definitively whether this was a deduction or not. It is clearly a "new" trade and not "sharpening the existing" expertise. Perhaps she felt stating this to be the case would clearly disqualify this from being an allowable deduction.

There is no question that an employee cannot deduct "new" education disciplines as an itemized deduction. But what about an existing company deducting this as an ordinary and necessary business expense?

A taxpayer cannot create a sham company just for the purposes of giving credence to an otherwise non-deductible expense. And "personal" expenses don't change their deductibility simply because a company has been created -- for example, a company paying for commuting expenses for an employee doesn't give rise to a deductible expense because the payment is deemed to be solely for the benefit of the employee.

However, Gretel's company was already created to carry on a business and had nothing to do with the education issue. And the benefit accrues to the continued life of the entity, not necessarily to the personal benefit of the enrollee.

On the other hand, a shrinkage of the entity from a two-owner company to a one-owner company (especially a proprietorship) might reduce the benefit to a "personal" benefit. Would like to hear more comments about this. From my perspective, I would say the education is deductible if the entity is a corporation (or LLC filing as a corporation), and very "iffy" if the remaining operator is a proprietorship.

[Gretel]

As far as the entity goes it is actually a LLC, multi-member before, single-member soon. I know the IRS couldn't care less but in some instances they acknowledge the existence of LLC's.

I'd love to hear some other opinions as well.

[ChEAr$]

The business

As far as the entity goes it is actually a LLC, multi-member before, single-member soon. I know the IRS couldn't care less but in some instances they acknowledge the existence of LLC's.

I'd love to hear some other opinions as well.

enterprise is already in the business of "making widgets". Therefore the business can
properly pay for added educational expenses to cross train members of the LLC in order
to further the aims of the business.

And such expenditures are tax deductible.