Education Expense

[NotEasy]

Taxpayer started an investment company (S-corp) in 2012. He spent a large sum of money (over 5k) to attend an investment course that taught him how to identify good investment properties. He did not have to take the course since anyone could start investing if he had money on hand. But the course, theoretically, would help him to find good investment opportunities.

Is the expense to attend the course deductible as an business expense of the S-corp?

[appelman]

Imho

I think I'd go for it.

[ChEAr$]

Taxpayer started an investment company (S-corp) in 2012. He spent a large sum of money (over 5k) to attend an investment course that taught him how to identify good investment properties. He did not have to take the course since anyone could start investing if he had money on hand. But the course, theoretically, would help him to find good investment opportunities.

Is the expense to attend the course deductible as an business expense of the S-corp?

Only if the corporation paid it, as opposed to his having paid it personally.

[Bill Tubbs]

corp reimburse

Even if he personally paid for it, if the corporation reimbursed him, then I would have no problem with the corp taking the expense (of course, in the year the corp reimbursed him).

[taxea]

and it wouldn't be deductible as startup because it is a "new job field"

[NotEasy]

Thank you for all the responses.

and it wouldn't be deductible as startup because it is a "new job field"

But would it be deductible as ordinary expense in the current year based on your opinion?

[NotEasy]

and it wouldn't be deductible as startup because it is a "new job field"

taxea, if you don't mind, would you please clarify your opinion further? It seems to me you are the only one who thinks the expense is not deductible. If that's the case, can you explain your reason further? I am very interested in knowing why.

[taxea]

Sorry for the delay. My opinion comes from years of training and experience. Your original post sounded like he opened the business for the purpose of writing off expenses for his personal investments. You say the course was optional and that he could have proceeded in the business without the course I don't have my research handy but I do know that under these circumstances this would not be deductible.
What is the nature of his business? Would this be personal investments or is he taking on clients? What services does he provide to his cliental?

[taxea]

Sorry for the delay. My opinion comes from years of training and experience. Your original post sounded like he opened the business for the purpose of writing off expenses for his personal investments. You say the course was optional and that he could have proceeded in the business without the course I don't have my research handy but I do know that under these circumstances this would not be deductible.
What is the nature of his business? Would this be personal investments or is he taking on clients? What services does he provide to his cliental?

I tried to delete the duplicate post but it wouldn't go away

[Bees Knees]

I have several thoughts on this:

The first obvious one is that business expenses for education are not deductible if the education is to learn a new trade or business. Assuming the taxpayer is not learning a new trade or business but merely taking courses to improve current job skills, then there are other issues to deal with.

It hasn’t been mentioned yet, but if this was an investment seminar, the expense would not be deductible as an investment expense. Section 212 says that expenses for the production of income are deductible. The term production of income in this context is investment income, such as earning interest, dividends, and capital gains from investment property, or rental income from rental real estate property. Thus, if you pay a financial advisor a fee to manage your investments, the cost is deductible as an itemized miscellaneous deduction, subject to the 2% AGI limitation.

However, Section 274(h)(7) says no deduction shall be allowed under Section 212 for expenses allocable to a convention, seminar, or similar meeting. So if you attend an investment seminar for the purpose of learning some new investing strategies, the cost of the seminar is not a deductible investment expense. The term "similar meeting" can be applied to investing courses, such as a class or series of classes that teach you new investing techniques.

Section 212 is not talking about ordinary and necessary expenses incurred in a trade or business. If you are in the trade or business of buying and selling investments for customers, then the cost of attending seminars would be a business deduction under Section 162, provided the education is not education to learn a new trade or business.

The fact that you start an S corporation to do your investing does not matter. If it is your own personal investing, running them through an S corporation is still an investment activity under Section 212. That is why an S corporation separately states interest, dividends, capital gains, and investment expenses on the shareholder’s K-1 because those items are taxed at the shareholder level as if the shareholder personally earned that income and incurred those expenses. Investment expense incurred by an S corporation, for example, are still reported as miscellaneous itemized deductions subject to the 2% AGI limitation on the Shareholder’s Schedule A. Thus, if the S corporation paid for the shareholder to attend an investment seminar for the purpose of learning how to invest through the S corporation, the expense would be non-deductible under Section 274(h)(7).

There is another caution with trying to run an investment activity through an S corporation. If the S corporation has any earnings and profits for when it was a C corporation, then the S corporation election would terminate once passive investment income exceeds 25% of gross receipts for three consecutive years. Thus, if you want to do your investing through an S corporation, make sure it doesn’t have any C corp E&P hanging around.

As to whether the activity is an investment activity or a trade or business, I would suggest reading TTB starting on page 6-11 under the heading “Classifying Investors and Traders.” If this is in fact a trade or business and not an investment activity, then there could be other consequences such as the mark-to market rules that one would have to deal with.