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.

Business Finance Fundamentals

I often open my workshops with the question: “How many of you started your business to keep the accounting records?” Funny thing; no one ever raises her or his hand. Can it be that people start a business to engage their passion and serve customers?


Last week at the Whole World Workshop for health and wellness practitioners, I got the usual response to that question. No hands, but several chuckles. At that point, everyone was relaxed and ready for my presentation about Finance Fundamentals.


My presentation focused on four essentials for a healthy business:


  1. Separate Business and Personal Finances

The risks of commingling funds are a negative impact on your personal credit and cash flow and an inability to get a clear, isolated view of business finances. It’s never too early to open a separate business bank account, one for each separate and distinct business. Also, apply for a business credit card to help with payments and cash flow.


  1. Keep Up-to-Date Accounting Records

Keeping up-to-date records means you always know your financial situation. Separate accounting records should be kept for each business to substantiate income and expenses. No particular record keeping method is required – accounting package or spreadsheets – to capture the date, amount, business purpose, and income/expense type.


  1. Develop Budget and Cash Flow

Use income from existing sales and vendor contracts, leases, and historical data to develop an annual budget. Identify operating expenses by category. Remember seasonal and one-time items. Include plans for investment and growth. Project cash flow needs for 12-to-18 months based on when payments are due to make sure bills are covered.


  1. Track Financial Performance

Prepare and review a monthly bank reconciliation, income statement (i.e., P & L) and balance sheet. Compare actuals with budgeted income and expenses to identify where your plans need adjusting. Assess cash flow inflows and outflows to make sure you keep enough funds on-hand to meet expense obligations.


Maintaining a healthy business means keeping it “alive” and ready to deliver its products or services. The four essentials described above are as good as “an apple a day” to keep your business in good financial health.