Education and Your Taxes

School started only a few weeks ago. By now, parents and students have spent what seems like zillions of dollars on supplies, tuition, and books. Sure, all that spending is an investment in the future. But is there a way to see some return on all that spending before graduation?


Qualified educational expenses could be eligible for income tax deductions or credits. That could mean hundreds or thousands of dollars back in your tax refund next year. Just how much you can claim depends on your situation. Here’s how it works:


  1. Education Credits

Qualified education expenses paid by or on behalf of an eligible student to an eligible school for higher education could be claimed as a dollar-for-dollar credit against your tax liability. That’s a lot of “qualifieds” and “eligibles” but it’s worth checking out. There are two education credits: the American opportunity tax credit and the lifetime learning credit. If you’re eligible to claim both credits for the same student in the same year, you can only choose one.


  1. Tuition and Fees Deduction

Qualified higher education expenses paid during the year for yourself, your spouse or your dependent could be tax deductible. If it produces a lower tax liability, you may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. Remember, no claiming the tuition and fees deduction and an education credit for the same expense.


  1. Business Deduction for Education Expenses

Employees who itemize deductions (i.e., Schedule A) may be able to deduct expenses paid for work-related education. Work-related education expenses may also qualify for one of the credits described above. Self-employed individuals can deduct work-related education directly from self-employment income, reducing both income tax and self-employment tax.


  1. Qualified Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if you qualify based on your income and filing status, there is a special deduction allowed for paying interest on a student loan used for higher education. This deduction can reduce your taxable income subject by up to $2,500.
Paying education expenses can take a bite out of your budget. Check out the IRS website at  to see if you qualify to get some of that money back in your tax refund next year.

Agreements Hold Vendors Accountable

When your organization is growing, or in need of a specialize skill set, outsourcing can be a real life saver. Bringing on a service or product vendor is intended to help, not create more to manage. The clearer you are about what you need, when you need it, and how, the better a vendor can meet your needs.


How can you increase the chance that a vendor will deliver and add value to your organization? Have a written agreement that addresses key components of the vendor’s responsibilities. Addressing these four items in your vendor agreements will clarify expectations to hold vendors accountable:


  1. Objective and Scope

Clearly describe the result that the vendor should achieve. Focus on what needs to be accomplished. Specifically describe what the organization expects to get when the vendor’s work is completed. For example, an agreement for an IT vendor to install and maintain a new system would describe, among other things, the end state after the system is installed, capacity and performance requirements, and the maintenance plan.


  1. Time Frame and Frequency

Specify delivery dates and how often your organization needs the goods or services provided. Clarify any unusual needs you have, such as nights or weekends, to avoid misunderstandings   preventing you from meeting your customers’ expectations. How would it look if a 24/7 café couldn’t get fresh food delivered on a Sunday? Highlight timing and frequency to make sure your vendor knows when you need her or him.


  1. Delivery and Acceptance of Goods or Services

Describe the expected condition, appearance, format, or other requirements that are essential for the goods or services to achieve your organization’s objective. Do the flyers need to be blue with your logo? Does the training class need to be two-hours long and meet specific learning objectives? Should goods be delivered in a certain way? Don’t presume that the vendor will understand your needs. Put them in writing.


  1. Cost

Last, but certainly not least, make sure the vendor’s total cost and when payment will be made are clear. Specify what is included in the total cost and how that cost is calculated. For example, is the cost for paper per box or per carton? Does the consultant cost an hourly rate plus expenses, or are expenses absorbed by the vendor? Stipulate that payment will only be made after goods or services have been accepted, or when a specified objective has been met.


Help can be great. It’s not so great if that help doesn’t meet your organization’s needs. Increase the chance that your vendors will deliver. Have a written agreement that clarifies expectations and holds vendors accountable.

The Budget: A Waze App to your Financial Destination

When you’re going to a new destination, you use a navigation app like Waze. Your financial goals are just like that new destination – you’re not quite sure how to get there. So how can you navigate towards achieving your financial goals? You set-up and follow a budget. Your budget is your Waze App (a.k.a. Road Map for most over 50) to finding your organization’s financial destination (a.k.a. your goals).


A budget navigates your organization toward achieving Three Financial Goals:


  1. Immediate Needs

Identify the amount of income and expenses that you expect to receive and pay out for the year to operate your organization. Build the budget line-by-line, carefully considering the reliability, amount, and timing of each item. Start with income and expenses for which a contract or agreement is in place. Include other items based on their likelihood to occur and your organization’s track record. Be realistic and document any assumptions that you make.


  1. Infrastructure

Beyond the day-to-day operations, you need to invest to keep up with technology or replace equipment that has reached the end of its useful life. Assess the condition of your vehicles, computers, and other property that you depend on to manage your operations, data, and communications. Determine what needs to be replaced, when, and the cost. Any replacements that don’t fit into the current year’s budget should be included next year, or in the future.


  1. Future Growth

Growing your market, programs, or services takes money. Budgeting is a thoughtful process that helps you plan for growth and funding. Budget time is when you assess your current financial scenario and previous track record, and plan your future. It’s the perfect time to weigh the costs and benefits of growing, and determine how to fund those costs. If those costs exceed what you can fund yourself, does borrowing or bringing on an investor make sense?


You wouldn’t drive to a new destination without a navigation app. Why would you navigate your organization toward its financial goals without a budget? Developing a budget and using it as a navigation tool will help your organization stay on track to achieving financial goals for immediate needs, infrastructure, and future growth.



Supporting Business Income and Expenses

Frequent readers of my blog know that I recently attended Tax Summer Camp, better known as the 2017 IRS Tax Forum, held in five cities across the country. At this year’s forum in Washington, DC, over 2,700 tax professionals heard about tax trends and issues from IRS representatives and experienced tax practitioners.


Two of the 18 sessions that I attended (yes, I said 18!) addressed documentation required by the IRS to support business income and expenses reported on a tax return. The tax rules generally require the same documents that you already keep to maintain the records used to monitor your business activities and prepare financial statements.


The IRS Forum emphasized four rules to support business income and expenses:


  1. Business income should be supported by invoices, IRS Forms 1099, receipt logs, bank deposit slips, online receipt records, cash register tapes, and other documents that show the amounts and sources of income, as well as the dates received.


  1. Maintain separate records and a separate bank account for each business and for personal transactions to identify income that derives from your business vs. personal income. A separate business account also makes it easier to reconcile business financial activity between the bank and your financial records.


  1. Documents that the IRS will accept to support business expenses include canceled checks, credit card sales slips, and vendor invoices:
    1. Check payments should be recorded in the financial records to include the check number, amount, payee’s name, date, and business purpose.
    2. Electronic funds transfer payments must show the amount transferred, the payee’s name, the date the transfer was posted by the financial institution, and the business purpose of the expense.
    3. Credit card payment support consists of the statement showing the amount charged, payee’s name, and transaction date. The business purpose must be noted in the financial records.


  1. Expenses for “mixed use” assets, such as vehicles, computers, and cell phones, must be allocated between business and personal use. Use an automated or manual log to track the use of the asset and maintain the log as support documentation.


Dedicating so much IRS Tax Forum time to business income and expense support reflects the topic’s importance. Don’t get caught short on support documents if the IRS asks questions about items reported on your income tax return. Maintain up-to-date financial records and all required support documents as you go throughout the year.