You cannot claim an education credit for expenses for which a deduction is allowed elsewhere on a tax return. A client may receive a greater tax benefit by claiming his education expenses as a business deduction on Schedule C or an employee expenses on Schedule A, if applicable. Qualified tuition would most commonly be deducted by a sole proprietor as a business expense on Schedule C or by an employee as a miscellaneous itemized deduction on Schedule A. For self-employed clients, a deduction will generally lead to greater tax savings than an education tax credit, regardless of tax bracket, because of the self-employment tax.
Kali is single with adjusted gross income (Adjusted Gross Income) of $34,000. To maintain her license in her profession she must attend 40 hours of continuing education. Kali attends a week-long continuing education program. Her tuition is $1,000, books are $100, room is $300, travel is $380, and meals are $200. Kali may claim a Lifetime Learning Credit of $200 (20% x $1,000 for the tuition). The $980 of books, room, travel, and meals do not qualify for the credit. However, if she is an employee who itemizes deductions, in addition to the credit of $200, she can deduct $200 [($100 books + $300 room + $380 travel + ($200 x 50%) deductible meals) ($34,000 Adjusted Gross Income x 2%)] giving Kali an additional $24 ($200 x 12%) of tax savings. If Kali is self-employed, her total tax rate on her business income is 27.3% (12% income tax rate + 15.3% self-employment tax rate). Rather than claiming the credit, she could deduct the education as a business deduction on Schedule C. Her tax savings from the deduction would be $513 [($1,000 tuition + $100 books + $300 room + $380 travel + ($200 x 50%) deductible meals) x 27.3% total tax rate].
By claiming your education expenses as a business deduction or as an employee expense, may lead to greater tax savings than claiming an education tax credit.