Though graduates of MBA programs often go on to earn some of the nation’s highest salaries, the journey from MBA student to MBA is an expensive one. The average MBA program costs around $40,000 a year. This does not include books, housing, fees, and other expenses like study abroad experiences. While the average cost for an MBA program is steep, the cost for a top MBA program is even higher. Total cost for a full-time MBA program at schools like NYU (Stern), Stanford (Graduate School of Business), Pennsylvania (Wharton), Columbia Business School, and Harvard have already hit or surpassed the $200K mark. Other top schools rarely cost less than $150,000, total.
The good news is students can tap into a number of sources to help manage costs. A few options include reimbursement benefits from employers, merit-based scholarships, campus teaching or research assistant jobs, and even loan forgiveness for entering the nonprofit and public service sectors. Another type of assistance might come from an unlikely source—the IRS.
Thanks to a 2016 court ruling in the case of Alex Kopaigora and Elizabeth S. Kopaigora v. Commissioner of Internal Revenue, MBAs may have an easier time deducting at least part of their education expenses from their taxes. This is particularly true for Executive MBA (EMBA) students.
In the case, Alex Kopaigora, an EMBA student at Brigham Young, deducted $18,879 from his taxes for commuting and tuition. The IRS disagreed with the deduction, stating that because Kopaigora was unemployed for several months during the year he was in the EMBA program, he did not qualify for the deduction. Kopaigora knew his deduction was accurate, so he decided to fight the decision. He was right. The IRS lost the case, and Kopaigora was able to save more than $2,000 on his taxes.
This decision is an important one because EMBA students (and other MBA students for that matter) now have a precedent to cite as justification for their deductions. Further, thanks to the ruling, it will be easier for MBAs who are unemployed to deduct their education expenses as “unreimbursed business expenses.” In a nutshell, the ruling makes it harder for the IRS to claim that being a full-time MBA or EMBA student excludes the deduction.
In the end, when it comes to tax benefits for education, things can still get pretty complicated. To ensure that you have all of the facts before deducting education expenses, head to the IRS’s Tax Benefits for Education Information Center. You can use the IRS’s Interactive Tax Assistant tool to help determine if you’re eligible for educational credits or deductions, including the American opportunity credit, the lifetime learning credit, and the tuition and fees deduction.
Per the IRS, “tax credits, deductions, and savings plans can help taxpayers with their expenses for higher education.”
- A tax credit reduces the amount of income tax you may have to pay.
- A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.
- Certain savings plans allow the accumulated earnings to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.
- An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit.
- If you would like to learn more about the Kopaigora case, read the United States Tax Court (USTC) summary opinion here.
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Byrne, John A. "Full Cost Of The MBA Keeps Rising: Four Schools Above $200K." Poets&Quants. Poets&Quants, Inc., 07 Mar. 2016. Web. 22 Mar. 2017.
Smith-Barrow, Delece. "10 MBA Programs Where Graduates Have the Most Debt." U.S. News & World Report Education. U.S. News & World Report L.P., 26 Apr. 2016. Web. 22 Mar. 2017.
"Tax Benefits for Education: Information Center." IRS.gov. United States Internal Revenue Service (IRS), 15 Apr. 2016. Web. 22 Mar. 2017.
"Today's Opinions." USTC. United States Tax Court, 02 Aug. 2016. Web. 22 Mar. 2017.