Can I Claim Online Courses on Tax? Understanding the Tax Deductions for E-Learning

Table of Contents

1. Introduction
2. Who is Eligible for Continuing Education Tax Deductions?
3. Requirements for Claiming Education Expenses
4. What Continuing Education Expenses are Deductible?
5. How to Write Off Continuing Education Expenses
6. Tax Credits Related to Education
7. The Impact of the Tax Cuts and Jobs Act (TCJA)
8. Examples and Hypothetical Case Studies
9. Conclusion
10. FAQ

Introduction

Did you know that the e-learning market is projected to reach $375 billion by 2026? This staggering growth reflects not only the rising popularity of online courses but also the increasing number of individuals and businesses investing in these educational resources. As Shopify merchants, we find ourselves in the midst of this booming creator economy, where diversifying income through digital products like courses can be both a lucrative venture and a way to deepen customer engagement.

As we consider the potential of offering online courses through our Shopify stores, a pertinent question arises: Can I claim online courses on tax? This blog post aims to demystify the tax implications surrounding online courses and continuing education expenses. We will explore the eligibility criteria for tax deductions, the types of expenses that can be claimed, and best practices for documenting these expenses.

Our intention is to equip you with the knowledge needed to navigate this complex area, enabling you to take full advantage of tax benefits associated with your online educational offerings. At Tevello, we believe in empowering Shopify merchants to unlock new revenue streams and build meaningful connections with their audiences through our all-in-one solution that integrates seamlessly into the Shopify ecosystem.

By the end of this post, you will have a clearer understanding of whether you can claim your online courses on taxes and how to go about it. Let’s dive in!

Who is Eligible for Continuing Education Tax Deductions?

To determine eligibility for tax deductions on online courses, we need to consider several categories of taxpayers. These include:

1. Self-Employed Individuals: If you are self-employed, you may qualify to deduct educational expenses that maintain or improve your skills relevant to your current business.
2. Employees: Though employees have faced challenges since the Tax Cuts and Jobs Act of 2017, certain categories of employees—like qualified performing artists, Armed Forces reservists, and local government officials—may still be able to deduct expenses related to work-related education.
3. Disabled Individuals: Those with impairment-related education expenses can also benefit from tax deductions.
4. Individuals Seeking Licenses or Certifications: If your course is necessary to maintain your professional license or meet industry regulations, you may be able to claim these costs.

It’s essential to evaluate your specific situation and determine if any of these categories apply to you. If you fall into one of these categories, you might be able to capitalize on the tax benefits associated with your online courses.

Requirements for Claiming Education Expenses

The IRS sets specific requirements for education expenses to qualify for deductions. Generally, an educational expense must meet one of the following criteria:

1. Maintain or Improve Skills: The course should help you maintain or improve skills required in your current profession. For instance, if you are a Shopify merchant offering a course on digital marketing, you can potentially deduct the costs associated with taking advanced courses in this area.
2. Legally Required: The education must be legally required to maintain your current employment status. For example, if you are a licensed accountant, any continuing education courses necessary to keep your license active may be deductible.
3. Not Qualifying for a New Career: The course should not qualify you for a new trade or business. For instance, if you are already a photographer, taking a course on graphic design to switch careers would not qualify for a deduction.

These criteria ensure that only relevant educational expenses are eligible for tax deductions.

What Continuing Education Expenses are Deductible?

When it comes to claiming deductions for online courses, not all expenses are created equal. Here’s a breakdown of some of the qualifying expenses you can potentially deduct:

1. Tuition Fees: The cost of courses taken online that are directly related to your current profession can be deducted.
2. Books and Supplies: Any necessary books or supplies required for the course are also deductible.
3. Lab Fees and Course Materials: If your online course includes lab components or specific materials, these costs may be included in your deductions.
4. Transportation Costs: If your course requires in-person attendance (such as workshops or certification exams), transportation costs may be deductible.
5. Online Platform Fees: Costs associated with platforms that host your online courses, like subscription fees, can also be considered deductible if they relate directly to your current profession.
6. Other Educational Expenses: This includes costs like typing and research for job-related coursework.

As a Shopify merchant, the potential to offer courses on our platform opens the door to not just additional revenue but also the possibility of tax deductions on related expenses.

How to Write Off Continuing Education Expenses

To successfully write off your continuing education expenses, you must follow a few steps:

1. Keep Accurate Records: Maintain thorough documentation of all expenses related to your online courses. This includes receipts, invoices, and any correspondence related to your studies.
2. Use the Correct Tax Forms: If you are self-employed, educational expenses can be claimed on Schedule C (Form 1040). For employees in qualifying categories, these expenses are reported on Form 2106.
3. Separate Personal and Business Expenses: Ensure that you differentiate between personal and business-related educational expenses to avoid complications during tax season.
4. Consult a Tax Professional: Given the complexities of tax laws, it’s prudent to consult with a tax professional to ensure you’re taking advantage of all eligible deductions without running afoul of IRS regulations.

Understanding how to properly document and report these expenses can lead to significant tax savings, making the investment in online education even more worthwhile.

Tax Credits Related to Education

In addition to deductions, there are also tax credits available that can help you offset the costs of education. Two significant credits to consider are:

1. American Opportunity Tax Credit (AOTC): This credit can provide up to $2,500 per eligible student for qualified education expenses during the first four years of higher education. If you are enrolled at least half-time in a degree program, this may be a beneficial option.
2. Lifetime Learning Credit (LLC): This credit allows for up to $2,000 per tax return for qualified tuition and related expenses. The LLC is available for any level of education, making it a viable option for those taking courses to improve skills or maintain certifications.

It’s important to note that you cannot claim both a tax deduction and a tax credit for the same educational expenses. As a Shopify merchant, you may want to consult with a tax professional to determine the best approach for maximizing your tax benefits.

The Impact of the Tax Cuts and Jobs Act (TCJA)

The Tax Cuts and Jobs Act of 2017 brought significant changes to tax deductions for education expenses. One of the most notable impacts was the suspension of the deduction for unreimbursed employee expenses, including certain education-related expenses, through 2025.

However, self-employed individuals still retain the ability to deduct qualifying education expenses directly from their self-employment income. This shift emphasizes the importance of understanding your business structure and how it affects your eligibility for tax deductions.

Examples and Hypothetical Case Studies

To illustrate the practical application of these tax deductions, let’s consider a few examples:

1. Example 1: A Self-Employed Graphic Designer
   Jane runs a successful graphic design business through her Shopify store. She decides to take an advanced online course in UI/UX design to enhance her skills. The course costs $500, and she spends an additional $100 on course materials. Jane can deduct the total of $600 as a business expense on her Schedule C.
2. Example 2: An Employee Seeking Continuing Education
   Mark is a full-time employee at a marketing agency and is required to complete certain courses to maintain his certification. He pays $1,200 for an online course and $200 for related materials. Since Mark falls under the category of qualified employees, he documents these expenses carefully and completes Form 2106 to claim the deductions.
3. Example 3: A Shopify Merchant Offering Courses
   Sarah operates a Shopify store selling handmade crafts and decides to create a series of online courses teaching crafting techniques. She invests $800 in an online course to improve her teaching skills and $150 in materials for her courses. As a self-employed individual, Sarah can deduct these expenses on her Schedule C.

These examples demonstrate how various individuals can leverage educational expenses for tax benefits, ultimately adding value to their business ventures.

Conclusion

As we have explored throughout this blog post, the question of whether you can claim online courses on tax is multifaceted and contingent upon various factors, including your business structure, the nature of your courses, and the documentation you maintain. By understanding your eligibility for tax deductions and credits, you can harness the financial benefits of continuing education while enhancing your skills to better serve your customers.

At Tevello, we are dedicated to empowering Shopify merchants by providing an all-in-one solution that integrates seamlessly into your business operations. Our platform allows you to create, manage, and sell online courses, opening up new revenue streams while fostering community engagement.

If you’re ready to take the next step in optimizing your Shopify store with online courses, we invite you to start your 14-day free trial of Tevello today. Join the ranks of successful merchants who are transforming their businesses and connecting with their audiences in meaningful ways.

FAQ

1. Can I claim online courses on my taxes?
Yes, if the course maintains or improves skills related to your current profession or is legally required, you can potentially claim it on your taxes.

2. What types of expenses can I deduct?
You can deduct tuition, books, supplies, and any fees related to your course that meet IRS criteria.

3. How do I keep track of my education expenses?
Maintain detailed records, including receipts and course descriptions, and consult a tax professional to ensure proper documentation.

4. Are there tax credits available for education expenses?
Yes, you can consider the American Opportunity Tax Credit and the Lifetime Learning Credit for qualifying education expenses.

5. What changed with the Tax Cuts and Jobs Act?
The TCJA suspended deductions for unreimbursed employee expenses through 2025, but self-employed individuals can still deduct qualifying education expenses.

By taking proactive steps and leveraging the tax benefits available, you can make your investment in online courses even more rewarding. Don't hesitate to reach out to a tax professional to get personalized advice for your situation!