by Karl L. Fava, CPA
as appeared in
the MBA Career Central for the month of January, 1998, (Issue #1)
One of the greatest investments one can make in themselves and their careers is the obtainment of an MBA. Not only is this investment costly in monetary terms, it also has a high cost in time commitment and sacrifice. Even so, the investment in one’s self will ultimately generate returns greater than traditional investments like stocks and bonds. Like any other investment, the cost of an MBA should be looked at from a taxation point of view. Unknown to many aspiring MBAs, MBA candidates, and B-School alumni is that there is actually an opportunity to deduct one’s educational expenses for income tax purposes. Considering the average cost of an MBA, (without room and board), is now in excess of $60,000, the tax implications are enormous.
The basis for the income tax deduction of one’s MBA is rooted both in the Internal Revenue Code, its Regulations, and Case Law. Additionally, the Internal Revenue Service, (IRS), has substantiated the deductibility of Graduate Business School expenses in IRS Publication 508, titled “Educational Expenses”. After a diligent MBA assimilates all of the laws, regulations, court cases, and publications, he or she will learn that the deduction is based on a few simple rules. The first is that the MBA must have established him or herself in a trade or business prior to matriculating in B-School. Additionally, the education must maintain or improve skills needed in his/her established field. There also needs to be a nexus between the pre-MBA and the post-MBA. If an MBA is returning to his/her prior employ after B-School there is an evident connection. Sometimes, the link may not be via employment but in functional expertise. For example one working in commercial banking prior to B-School, and moving into investment banking afterwards demonstrates the necessary nexus.
A Business Person who invests in their business to maintain market share, produce future growth and income is looking at his/her investment from all perspectives, including the ones related to taxation. An MBA is no different. Their investment is going to produce marketability, greater career opportunities, growth, and generate income in excess of what could be earned without an MBA. As a Business Person you cannot neglect to review your personal facts and circumstances to determine if your B-School educational expenses would be deductible for income tax purposes.
Even with the entire existing basis for the deductibility of Graduate Business School expense, one must be wary of the IRS. As we all know from recent news reports the IRS really is not “Taxpayer Friendly”. That’s why it is always advisable to consult with a tax professional in matters such as this, and in actuality for all tax planning and compliance matters.
Karl L. Fava is president of Business Financial Consultants, Inc., (BFC), located in Dearborn, Michigan. His firm handles tax and financial matters for individuals located on five continents. In the United States, BFC has clients in most major cities. Along with assisting business people world wide in maximizing tax and financial strategies BFC has been assisting clients in deducting MBA expenses for over eight years. BFC’s web site is www.bfcinc.com. Mr. Fava’s email address is: firstname.lastname@example.org.