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Is there a new doctor in the house?

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in Small Business Tax

Q. I am a financial planner in the medical community. The doctor/owner of an incorporated pediatrics practice wants to pay for the specialized education of his son, who is just out of medical school. The son will join the practice. Can the firm deduct the cost? P.K., Riverside, Calif.

A. It’s a close call. A corporation can generally deduct the job-related tuition it pays for an employee if the courses maintain or improve the employee’s current job skills. The payments are tax-free to the employee. But the education cannot qualify the employee for a new trade or business, or satisfy minimum employment requirements. Based on these facts, it could be argued that the cost is deductible. Nevertheless, if challenged by the IRS, the taxpayer has the burden of proving that the education does not qualify the employee for a new business.

Tip: Alternatively, the company may set up a nondiscriminatory educational assistance plan or simply pay the young doctor additional tax-deductible compensation to cover the cost.

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