First, a word of caution: I am not an accountant, I am simply passing on information that students in the Smeal EMBA program have shared with me. The following is my understanding of the information given to me by them, and should be reviewed with an accounting professional.
The tuition-and-fees deduction for part-time and full time MBA students is relatively new (2006). It allows taxpayers to deduct higher-education expenses as an adjustment to gross income instead of claiming the Hope or Lifetime Learning credit.
This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction might be beneficial to you if you cannot take either the Hope or Lifetime Learning credit because your income is too high. The tuition-and-fee-deduction limitation is separate and apart from the work-related education deduction. However, obviously you cannot deduct the same expenses twice.
You can deduct the costs of qualifying work-related education as business expenses. An example is education that maintains or improves skills needed in your present work.
However, it is not work-related education if it:
1. Is needed to meet the minimum educational requirements of your present trade or business, or
2. Is part of a program of study that will qualify you for a new trade or business.
You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree. The IRS provides the following example of qualifying for a new trade in contrast to leading to a degree: You are an accountant. Your employer requires you to get a law degree at your own expense. You register at a law school for the regular curriculum that leads to a law degree. Even if you do not intend to become a lawyer, the education is not qualifying because the law degree will qualify you for a new trade or business. While an MBA will make you more marketable, it in itself does not lead to a new trade provided you already have a business background.
An MBA does not necessarily lead to a new trade but rather tends to improve your current skills. Even if getting an MBA will lead to a new position within the company, so long as it is in the same general area of your current duties, this is not considered a new trade.
For an employee, work-related education expenses are miscellaneous itemized deductions on Schedule A. Unlike your wife’s deduction, yours is not limited to only tuition and fees. The following education expenses can be deducted.
1. Tuition, books, supplies, lab fees and similar items.
2. Certain transportation and travel costs.
3. Other education expenses, such as costs of research and typing when writing a paper as part of an educational program.
Your deduction should be reduced by employer reimbursements. As I mentioned before – I am not an accountant, and before you do anything please consult an expert in this area!