Education expenses for S-Corp

[kgalland]

Does anyone have good guidance on deducting education expenses for an S-Corp Owner that did not receive a salary. The IRS publications only address education expenses for self-employed or fringe benefits for employees. I can't find good guidance that would allow a business deduction for an LLC that files as an S-Corp.

[TaxGuyBill]

What type of education, and what was the purpose of the education?

And why did the owner not receive a salary?

[kgalland]

MBA which may qualify based on the requirements for deductible expenses. The rules are clear for Self-Employed but I am not sure a corporation can deduct expenses unless they are an employee. Like many S-corp owners they don't follow the rules regarding salary even when we tell them to. The S-Corp is a second business and it generated a loss for the year.

[dascpa]

No education going into a new field is ever tax deductible.  So going for your CPA, bar, medical, etc. is ever allowed. This applies to any type of entity.  Continuing education is tax deductible (e.g. CPE credits) once you are "in" the field.  Other education in a field that does not require licensing and hence continuing education can be deductible and may be challenged.  I had a case of a surgeon who took classes to add an additional type of surgery to his repertoire.  The IRS said it was a new field.  We won that it was an extension of his current field, no different than a chef taking classes on how to make new types of food.  The -0- income issue is a red flag but not a determining factor.  A real estate agent may list a house this year but not sell until next year.  Their continuing ed classes are not limited by the income.  But, be careful of the fringe benefit rules and the 2% shareholder rules if this is not pure professional continuing education.

[qbteachmt]

"Like many S-corp owners they don't follow the rules regarding salary even when we tell them to."

The person is a Shareholder; the S Corp doesn't have an Owner. It's pretty hard to show the S Corp has anything to do with this person's (re-)education, when their non-action results in no employment relationship to the entity trying to take this deduction as if it is related to the entity. You cannot even take advantage of the Tuition Reimbursement rules.

In other words, the person has treated themself as an investor, and now they suffer the consequence of the corner they put themself into. Tell them the full picture and see if they want to start to follow the rules.

[kgalland]

I agree and the actions make it easier to determine which clients not to keep when we scale back. It is difficult to substantiate expenses when clients do not follow IRS rules. There is a reasonable chance that the expenses would qualify under deductible tuition expenses but not without compensation.