Long Haul Trucker deductions

[cjwolfe]

Can a trucker deduct their CDL schooling on their first Schedule C? I'm guessing, no, but my client seems to think he knows more than I do so he is saying that he can.

[DaveO]

What was his previous job?

Education or training that qualifies a person for a new trade or profession is non-deductible.

[cjwolfe]

Thank you. He was a factory worker. I just wanted to make sure I was thinking correctly.

[Corduroy Frog]

Disagree

A rare disagreement with DaveO.

Business returns (including Sch C) open the realm of "ordinary and necessary" expenses to people who are ordinarily stifled by Sch A requirements and the IRS 2% pillage/plunder.

I will admit that IRS is on a crusade to disallow certain "personal" expenses from being deducted, even on a schedule C. Most of this can be circumvented by incorporating, unless such expenses become taxable fringe benefits.

[Zee]

I agree with DaveO. It isn't deductible if he's training to become a truck driver for someone else and qualifying for a new profession.

If he's training to start a business, the only possibility is considering the training as a business start up expense. IMHO, in his case, it would still be a personal expense because he isn't qualified to start that type of business without licensing.

If this type of expense could be considered a start-up expense, why not a college education to become an incorporated or Schedule C licensed physician?

[Bees Knees]

Education to start a new profession is non-deductible. It does not matter whether it is a Schedule A employee or Schedule C business. The regs apply this limitation to both employees and self employed taxpayers. [Reg. Sec. 1.162-5(b)(2) and (3)]

[JohnH]

I almost lost a client over this exact question two years ago. Plant production worker who decided the truckin' life was more exciting & paid better, so he paid about $6K to go to truck driving shool. Finally told the client that the only way he was going to deduct the cost of getting the CDL was if he or someone else prepared the return. I also suggested that he ask the school to provide written verification that the course cost was deductible (as the salesperson had told him), but of course all they would say is "consult your tax advisor". He's now thinking about getting some sort of special HazMat endorsement, so he was pleased to learn that this cost would potentially be deductible

[Kram BergGold]

What about Lifetime Learning Credit?

If the school accepts financial aid, then Liftime Learning Credit is available.

[Corduroy Frog]

Recant

DaveO, my apologies to you and others.

I am very resistant to the disallowance of expenses which are ostensibly ordinary and necessary. But after reading Bees Knees citation in the Regs, it appears there is a very clear disallowance of such training costs, and the regs even go so far as to disallow a self-employed person -- so it makes no difference whether the enrollee is an employee or self-operator.

The training expenses are STILL ordinary and necessary, just not deductible. As such, if a corporation were formed, these expenses should be deductible to the corporation, even if only amortizable as start-up costs. If this training is provided to drivers, there might be some question as to whether corporate-provided training is a taxable fringe to the drivers.

[Zee]

Corduroy Frog

DaveO, my apologies to you and others.

I am very resistant to the disallowance of expenses which are ostensibly ordinary and necessary. But after reading Bees Knees citation in the Regs, it appears there is a very clear disallowance of such training costs, and the regs even go so far as to disallow a self-employed person -- so it makes no difference whether the enrollee is an employee or self-operator.

The training expenses are STILL ordinary and necessary, just not deductible. As such, if a corporation were formed, these expenses should be deductible to the corporation, even if only amortizable as start-up costs. If this training is provided to drivers, there might be some question as to whether corporate-provided training is a taxable fringe to the drivers.

No apologies are necessary for disagreements here. We learn from each other.

However, I still disagree that this would be a deductible startup expense. That would suggest training to become about anything is deductible as a startup expense as long as you form a Corporation. I'm anxious to hear what Bees thinks.

[Corduroy Frog]

Corporation

I do hate making inaccurate responses to posts, and living with the possibility that someone may be
acting on bad advice.

I have been taught in tax strategy sessions that the formation of a corporation can perfect the deductibility of otherwise questionable deductions by individuals. There is also the fact that a separate entity is incurring the costs. Additionally, if the corporation paid training costs for other drivers, there would be no denying the deduction. (Of course, this was not given in the facts as presented above)

I believe the only way the IRS could defeat this would be to declare the corporation a sham for propulgating a tax advantage with no other apparent purpose. They do this sometimes, but it would be hard to imagine a trucker going to this much trouble just to deduct his training.

I too will be interested in hearing what Bees Knees thinks about this.

[S T]

Corp Expenses

I think most of us would agree that the cost of the Truck Driving School would NOT be deductible for a Schedule C taxpayer starting a new Truck Driving Business, never in the profession.

Would it seem to be a deduction for an S Corp ?

If, the cost were not for that of the primary Shareholder, starting up a new business (Primary Shareholder\S Corp would be the Truck Driving Company, maybe would not have to hold a license for Truck Driving and actually the Shareholder does not drive )

but rather for an employee that the Corp is hiring?

Thinking outloud!

I am also anxious for Bees input as well as that of others.

Sandy

[Bees Knees]

A corporation paying education expenses for an employee to learn a new profession could deduct the expense if it were included in the employee’s taxable compensation as wages.

An exception to this rule would apply under the Educational Assistance Program (IRC Section 127) where up to $5,250 of education can be provided to an employee tax free. See TTB page 13-28.

[Zee]

A corporation paying education expenses for an employee to learn a new profession could deduct the expense if it were included in the employee’s taxable compensation as wages.

An exception to this rule would apply under the Educational Assistance Program (IRC Section 127) where up to $5,250 of education can be provided to an employee tax free. See TTB page 13-28.

Bees-

Agreed. Certainly an operating trucking business can deduct training costs for its employees. But, that's much different than the suggestion the training may be deducted as a start-up expense.

So, could a single owner S-Corporation trucking company deduct the training or not? How can it meet the "ordinary & necessary" test since the business can't even be operational until the minimum education requirements (truck driver training) are met?

[Bees Knees]

So, could a single owner S-Corporation trucking company deduct the training or not? How can it meet the "ordinary & necessary" test since the business can't even be operational until the minimum education requirements (truck driver training) are met?

It deducts it as taxable compensation. As an employer, the S corporation can decide to pay its employees in the form of groceries, or paying their electric bill, or putting gas in their tank, or paying for their education. Most simply give their employees cash. Such expenses are deductible as ordinary and necessary expenses because paying wages to employees are ordinary and necessary.

Employee compensation in any form is deductible by the employer and taxable to the employee. The corporation paying deductible compensation in the form of a tax-free fringe benefit is another matter. In order for the benefit to be tax free to the employee (while still deductible by the employer), it has to be specifically mentioned in the code as a tax free fringe benefit. Compensation in the form of Educational Assistance under IRC Section 127 is one example of a tax free fringe benefit.