Educational deductions

There is one cute little trick that works like a charm to rescue a tax client who has taken a course that has something to do with his or her occupation but has not got an official receipt for this educational course.

I saw this done several times and I did it myself several times. It was never questioned by Revenue Canada and I am pretty sure that the IRS would not object to it either. There was a large school in Vancouver, Canada that offered courses in modelling, hairdressing and such things but was not registered with Revenue Canada so they could not issue official educational receipts.

What we did was place the school expenses on a business statement and then show nominal income on the same statement. As an example if the client had taken a hairdressing course we would show a business statement as a hairdresser and show say $25 income as a hairdresser and $800 or whatever had actually been paid as a business expense. The client then had a $775 business loss instead of an $800 educational expense. We might have done this statement for free or charged $5 for it because we had to fill in a bunch of stuff at the top of the page but it was still a really good deal for the client.

This worked first of all because it was very close to what had actually occurred, and secondly because Revenue Canada expected to see income from this business in future.

There are many more little dodges like this that can be used when a taxpayer has an expense that does not quite fit into any particular category but clearly has a business purpose. Using any of these little dodges must be done very carefully because if the paperwork is not clear the tax authorities will deny the deduction and maybe do more than that. It is necessary to balance the chance of trouble with the tax authorities against the loss of a legitimate business expense.

Recently I saw some expense claims that were ridiculous. One woman charged a new fur coat as an expense of advertising her business but her business had nothing to do with fur. I could not see any connection with her advertising and neither did the IRS. I think that they hit her with a penalty for this claim.

29 thoughts on “Educational deductions

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