The IRS and Startup Education
What’s Tax Deductible?
Are programs such as Startup Institute and General Assembly tax deductible?
What about courses like One Month Rails or BaseRails?
The short answer: it depends.
For reference, look at IRS Publication 970: Tax Benefits for Education and the IRS summarization.
Full disclosure: The below is based off my interpretation of the IRS tax publications. Although I have professional experience in the space, tax filing decisions and consequences are solely the responsibility of the filer.
Education Required by Employer
If your employer requires you to do the program to keep your present salary, status, or job, than it is tax deductible.
If the program qualifies you for a new skill, it is not tax deductible. To qualify, it can only maintain or improve skills needed for your present work.
It is not deductible if it is required to meet minimum education requirements or if it’s a part of a program that will qualify you for a new trade.
Example 1: If you are a web developer (let’s say you have a Python background) and your employer is changing their stack to Rails (therefore, requiring you to learn it for legitimate purposes), taking a course at BaseRails would be tax deductible.
Example 2: If you are a salesperson (and you finally convinced your employer to let you move to the development team), and they tell you to take One Month Rails, it would notbe deductible (since it would be qualifying you for a new trade).
Example 3: If you were hired as a web developer but had no development skills (they hired you based on your passion and your perceived potential), and they told you to use One Month Rails, then it would not be deductible (since it is required to meet minimum education requirements).
Education To Maintain or Improve Skills
Alternatively, if the above does not apply, it is tax deductible if it maintains or improves skills needed in your present work. This includes refresher courses, academic/vocational courses, or courses that look at current developments.
If the education qualifies you for a new trade or business, it is not tax deductible.
If the education happens while you stop work for more than a year, it is not tax deductible.
Example 4: If you are a contract web developer who’s background is Python but you do Startup Institute to learn Rails (since all your clients keep asking for Rails applications!), the education would be tax deductible.
Example 5: If your background is finance and you go to General Assembly to learn web development, it would not be tax deductible (since you’re learning a new trade).
Example 6: If you were in a marketing role, take a year off to be a photographer, and go to Startup Institute for marketing, it would not be tax deductible (since you stopped work for >1 year).
Black, White, and Gray
The beauty of tax is that it’s subjective. There’s some black, some white, and a lot of gray. This is especially true in the tech space where skills often intersect:
- What if you’re a back-end developer learning front-end design?
- What if you’re a marketing person learning sales?
- What if you’re a full-stack developer and your startup wants you to learn marketing so you can add growth hacking elements to the site?
Use your best judgment and — as long as you are willing to stand behind your position if you ever get audited — file away!
