“For 2013 and 2014, Company A will be reimbursing me for my tuition expense ($100k), which will show as additional income. “---->It depends on whether the tuition reimbursement is taxable income or not. As the reimbursement is taxable to you, you can use the expenses. Basically, you may be able to deduct qualified tuition and related expenses that you pay for yourself as a tuition and fees deduction. You do not have to itemize to take this deduction. You can claim either a AOC or Lifetime Learning credit if applicable. HOWEVER,You cannot take your edu credit deduction on your income tax return if your filing status is married filing separately, or if you may be claimed as a dependent on someone else's return. The deduction is reduced or eliminated if your MAGI exceeds certain limits that depend on your filing status. There are no double benefits allowed;you have to choose either the AOC or Lifetime learning edu credit.You cannot claim AOC(AOC credit can be claimed for expenses for the first four years of post-secondary education.) and Lifetime Learning credit at the same time. You cannot claim a deduction or credit based on employer-provided education assistance UNLESS the ER provided assistance is reported as your income.
“1) I understand the first ~$5k is tax exempt... however, is there anything I can do to mitigate the additional $45k in annual income?”-----> Companies commonly use fringe benefits, such as tuition reimbursements, in addition to ordinary salaries to attract and retain exceptional EEs. There are tax implications that both the EE and ER must deal with if a tuition reimbursement is more than $5,250. However, EEs may be eligible for an education credit to eliminate the income tax on the excess. In general, the IRS defines a fringe benefit as anything of valuehe provides employees above and beyond ordinary cash compensation. Moreover, the agency requires ERs to include all fringe benefits in the EE's taxable wages by listing the benefit amounts on a W-2. However, the tax law provides numerous exclusions to this general rule, one of which covers the tuition reimbursement programs that ERs provide pursuant to an eligible educational assistance program. In order to exclude the tuition reimbursement from the EE's taxable income, in addition to the amount not exceeding $5,250, the IRS requires that theER provides the reimbursement pursuant to an educational assistance program. This is a written plan that provides tuition reimbursements to EEs. The IRS doesn't prohibit ERs from providing EEs with reimbursement that exceeds $5,250; however, any reimbursement that exceeds this limitation is taxable to the EE. This means that when you, as an EE, fill out a tax return, You will pay tax on the excess reimbursement as if it were ordinary salary and wages. In addition to the income tax, the excess is also subject to FICA and fed/state taxes, which may result in higher amounts withheld from your paycheck. However, you who attend school part time may be eligible for the lifetime learning credit, which can reduce your tax bill on a dollar-for-dollar basis. If you qualify for the credit, you can include the cost of tuition that exceeds the $5,250 in the credit calculation.
SO, you may be able to deduct educational expenses paid during the year as a business expense, even if the education leads to a post-bachelor degree ,i.e.,MBA, etc. However, because the deduction can be quite large and the rules are subject to varying interpretations, the IRS has increased its audits in this area. To qualify, you must meet ;1. your education must maintain or improve your skills in your pre-grad occupation. If you worked in the same industry both before and after graduate school, your pre-grad occupation had some managerial duties, and your MBA courses related to your previous occupation, you have a better case for the deduction. Your education must be required by your employer, or by law or regulations, to keep your present salary, status, or job. You have a better case for claiming the deduction if your employer requested you to get the MBA (and have a letter to support that);2. the education must not be needed to meet the minimum requirements for a trade or business. To become a doctor, you must go to medical school, to become a lawyer, you must go to law school. For these occupations, the education would not be deductible as a business expense because the education is the minimum requirement. However, it is possible to work in management or finance, etc., without an advanced degree, so expenses to obtain an MBA degree could possibly qualify;3. the education must not qualify you for a new job, trade, or business. If you had limited managerial and/or business duties in your occupation prior to getting your MBA, (less than one or two years of business experience), your MBA might be construed as qualifying you for a new trade or business, and would therefore not be deductible. If you are an employee, a change of duties that involves the same general kind of work is not a new trade or business. However, some IRS officers focus on this particular rule to try to disallow deductions for MBA expenses; the expenses must be deducted in the year you paid them. This includes costs paid using loan funds. If your income in that year is less than your deduction, you will generate a net operating loss which can be carried forward to reduce your taxable income in the next year. Net operating losses can be carried forward up to 20 years until used up.
“2) According to the work related education deduction, I might qualify, however wouldn't this be for prior tax years (2010-2012)? “----->I guess it depends as mentioned previously; in general, you can’t mitigate the additional $45K on your return.( as long as it is paid through an ER-provided educational assistance program you can exclude up to $5,250 of those benefits each year. This means your ER should not include the benefits with your wages, tips or other compensation shown in box 1 of your Form W-2. If that is the case you cannot use any of the tax-free education expenses paid for by the ER as the basis for any other deduction or credit, including the lifetime learning credit regardless of when you received the benefit).As the benefit paid is more than $5,250 then the amount that is generally taxable then the amount that exceeds $5,250 would be included in Box 1 of the W-2. This is true unless it is considered a working condition benefit. If it does qualify as a working condition benefit then it would not be taxable even if the amount paid was more than $5,250. Certain job-related education may qualify. To qualify the education must meet the same requirements that would apply in determining whether you, the EE, could deduct the expenses had you paid the expenses. In order to meet the test the education must meet at least one of the following: The education is required by the ER or by law for the EE to keep his or her present salary, status, or job. The required education must serve a bona fide business purpose of theER;the education maintains or improves skills needed in the job.
Last edited by Wnhough : 01-03-2013 at 01:08 AM.