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Deducting Your Seminar Expenses

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Published: 16Oct2009
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Education is a primary focus for me. I attend seminars all year round, both as a speaker and a participant. Why? I believe there is a direct relationship between knowledge and risk.

As knowledge increases, risk decreases.

For example, I want my clients to increase their knowledge about the rules for deducting certain expenses because their increased knowledge decreases the risk of an unfavorable adjustment during an audit.

One of the most common questions I get at seminars is:

Is the Cost of this Seminar Deductible? This is an area of the tax law that is a prime example of how increasing your knowledge, can decrease your risk. In this case, it can decrease the risk of overpaying your taxes and decrease the risk of having to pay more tax (and penalties and interest) if you are audited.

If you polled CPAs and asked them this question, you would find that many would answer that seminar costs are not deductible.

This answer is a correct answer for certain people in certain situations, BUT is certainly not the correct answer across the board.

The General Rule There are certain sections of the Internal Revenue Code that specifically disallow deductions for seminars taken for investment purposes.

The IRS typically goes straight to these sections when seminar expenses are found during an audit and the IRS usually immediately proposes to disallow the seminar expenses.

In fact, one of my School of Tax Strategy students recently asked me this question:

Question: I am having an IRS audit and they are trying to disallow my deduction for taking a personal development seminar. I am in network marketing and I thought that those were deductible. Can you help?

This question perfectly illustrates how the IRS will place the burden on the taxpayer to prove an expense is legitimately deductible. This is why my team and I are constantly focusing on educating our clients on proper documentation.

Imagine the auditor's response when you can immediately provide them with the specific documentation they request? I've seen it first hand and they are usually shocked. Needless to say, the audit usually wraps up pretty quickly after that with no adjustments.

How to Deduct Seminar Costs - Legally! So, if there are specific sections that disallow seminar expenses, then how can they possibly be deductible - legally? Here's how. These particular sections only apply if the expense can't be claimed under another section.

Here's how I responded to this student's question:

Answer: First and foremost, I always suggest hiring a qualified CPA to handle any IRS audit. It's cheaper than handling it yourself as you will always end up paying less tax if a good CPA is in charge of the audit. Also, it seriously reduces the emotional strain of the audit because you don't have to deal with the IRS. That said, let me answer the specific question.

Section 212 and Section 274(h)(7) of the Internal Revenue Code specifically disallow deductions for seminars taken for investment purposes (i.e., production of income). These are probably the rules being cited by the IRS auditor as why your seminar is not deductible.

However, Section 162 allows a deduction for all "ordinary and necessary" expenses carried on in a trade or business. The key is in proving to the auditor that the seminar specifically relates to your business and is ordinary and necessary in your line of business.

Depending on the line of business, a seminar may be ordinary and necessary because of the marketing opportunities it provides, or the networking opportunities it provides, or because it is required by your professional associations. There can be numerous reasons as to why a seminar meets the ordinary and necessary requirements - all of them depend on the specific line of business.

By making sure the seminar expense meets the criteria under Section 162, the expense becomes a legal tax deduction! This is powerful knowledge to have because it gives you the ability to look at all of your expenses in a new light!

Keep This in Mind In the tax law, there are a lot of details to be aware of to make sure your deduction is rock-solid. Just because the general rule is met, doesn't mean there isn't another exception hiding somewhere.

Keep the following in mind if you are claiming that the seminar is for work-related education.

Education is a legitimate expense under Section 162, but it is specifically disallowed if it is to meet pre-existing minimum educational requirements for your business or profession OR trains you in a new line of business.

While the rules can be tricky, my goal is to make these complex rules understandable.

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