A reader asks: For 2008, we’re in the 25% tax bracket. We paid $535 for a Java programming class that my husband took. He works as a web designer, and he does freelance work on the side. What’s the best way to deduct this? Do I want to take a tuition and fees deduction? Use the Lifetime Learning Credit? Or should we deduct it as a business expense related to his freelance work?
My answer: If you meet the requirements (discussed below) the best option is certainly to deduct it as a business expense. This way it would save you money on both income tax and Self-Employment Tax for a grand total tax savings of roughly 40%.
By way of comparison, taking the Tuition and Fees Deduction would save you 25%, and taking the Lifetime Learning Credit would save you 20%.
In order to be able to deduct the class as a business expense, it must “maintain or improve a skill needed in your present work.” Given that your husband is already a web designer, it sounds to me like he meets this requirement.
However, the class also must not:
- be needed to meet the minimum educational requirements of your present trade or business, or
- be part of a program of study that will qualify you for a new trade or business.
This first exception doesn’t sound like it would be a problem. As far as I know, there are no educational requirements to be a freelance web designer. (In fact, I’m pretty sure that there are plenty of freelance web designers who haven’t even graduated high school yet.)
The second exception shouldn’t really worry you either. A course in web-related programming doesn’t seem to qualify a web developer for any new business.
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