Is an MBA Education Tax Deductible for the Self-Employed?

In certain situations, self-employed people can deduct the cost of an MBA education by treating it as a business expense on Form 1040, Schedule C. It must be a career-related expense integral to the job at hand, rather than in preparation for an entirely new field. Provided that the pursuit of an MBA qualifies, a wide range of costs may be appropriately deducted.

Qualifying Factors

For tax purposes, the term "education" can cover a broad array of pursuits, coursework and seminars. The first qualifier is that the expense either improves or keeps current those skills necessary to perform the tasks necessary for the business. For example, a stock research analyst would directly benefit from the knowledge required to obtain an MBA. The second consideration is that the MBA is mandated by regulation or law to be able to continue working with new or existing clients.

Current Business or Trade

The cost of an MBA education is deductible only if it goes to meet the requirements of the current business or trade. If, for example, an ambitious owner of a dog-walking business decides to obtain the degree for a job in the brokerage industry, the education is not tax-deductible. By contrast, that person may deduct all MBA expenses if the education's purpose is to improve entrepreneurial skills so that the dog-walking business can become more professional and grow its client base.

Subjectivity

The MBA degree must be shown as integral, rather than for bragging rights or as a nice accomplishment to share with friends, family or peers. A medical or law degree is an absolute requirement to be able to obtain certification or pass the bar, but an MBA can be seen as subjective. Self-employed people who wish to deduct the costs should take care to document all expenses and treat the education itself as a business.

Real-World Example

The 2011 case of Lori Singleton-Clarke v. Commissioner is instructive for those deciding whether and under what circumstances to deduct the cost of an MBA.

Singleton-Clarke was a certified nurse with 24 years in the field. She had become a manager and decided to obtain her MBA degree to enhance her skill set. The IRS did not allow her deductions and she appealed. The IRS claimed that she obtained the degree to get a new job, which she did soon afterward, but the Tax Court ruled that the degree did in fact aid the job she had when working toward the degree.