Licensing Exam Fees Tax Deductible?

[Gas_Doc]

I'm wondering if exam fees for licensing can be tax deductible? I understand that Pub 529, page 16 under Professional Accreditation Fees says "You can't deduct professional accreditation fees such as the following...Medical and dental license fees paid to get initial licensing." I think the important thing here is "initial," as in your general medical license. Once you pass Step 3, finish an intern year, and get your own state medical license (not the resident one), you can technically deliver babies or perform Whipples by yourself if you so choose. Any other licensing after that would be considered "advanced" licensing in the eyes of the IRS, correct?

So do exam fees for more advanced licenses (ie my written and oral anesthesiology boards, my advanced TEE boards, etc) count under this "initial license" provision? I certainly wouldn't count that, but I'm also not a CPA. What are your thoughts?

[shantster]

I'm curious about this as well. It appears that publication only refers to schedule A deductions - would these same rules apply to people that are independent contractors and filing a schedule C? My fellowship pays us to moonlight at one of the outside hospitals and from the documentation provided, it appears we will be paid on 1099. Since we cover as attendings out there, we had to obtain unrestricted state licenses and DEA license. Additionally, we have to take our specialty boards this year. The only thing being reimbursed is our DEA license. Can these expenses be deducted as business expenses from schedule C?

Thank you.

[Gas_Doc]

Bump

[robertwwwwr]

I never read into the details of "initial" versus subsequent licensing, but in that same document, on Page 5: "Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession" as this is an "Unreimbursed Business Expense"...

In my wife's case, her residency paid for her initial licensing (hence, even though the "initial" fee wasn't deductible, we couldn't deduct it anyway since it was reimbursed) and then we've been classifying subsequent expenses as "unreimbursed business expenses" -- e.g., scrubs, testing, licensing, etc.

[jfoxcpacfp]

Gas_Doc wrote:

I’m wondering if exam fees for licensing can be tax deductible? I understand that Pub 529, page 16 under Professional Accreditation Fees says “You can’t deduct professional accreditation fees such as the following…Medical and dental license fees paid to get initial licensing.” I think the important thing here is “initial,” as in your general medical license. Once you pass Step 3, finish an intern year, and get your own state medical license (not the resident one), you can technically deliver babies or perform Whipples by yourself if you so choose. Any other licensing after that would be considered “advanced” licensing in the eyes of the IRS, correct?

So do exam fees for more advanced licenses (ie my written and oral anesthesiology boards, my advanced TEE boards, etc) count under this “initial license” provision? I certainly wouldn’t count that, but I’m also not a CPA. What are your thoughts?

Click to expand...

The costs of qualifying you for a new profession are not deductible. That is why initial licensing fees are not deductible. I wouldn't call subsequent years "advanced" licensing, just an ordinary and deductible business (employee) expense

shantster wrote:

I’m curious about this as well. It appears that publication only refers to schedule A deductions – would these same rules apply to people that are independent contractors and filing a schedule C?

Click to expand...

Deductible in same way on sch C. Not to become a doctor, but to do business as a doctor.

Gas_Doc wrote:

So do exam fees for more advanced licenses (ie my written and oral anesthesiology boards, my advanced TEE boards, etc) count under this “initial license” provision?

Click to expand...

Business/employee expense, not a cost of going into a new profession.

.

[shantster]

robertwwwwr wrote:

I never read into the details of “initial” versus subsequent licensing, but in that same document, on Page 5: “Licenses and Regulatory Fees You can deduct the amount you pay each year to state or local governments for licenses and regulatory fees for your trade, business, or profession” as this is an “Unreimbursed Business Expense”…

In my wife’s case, her residency paid for her initial licensing (hence, even though the “initial” fee wasn’t deductible, we couldn’t deduct it anyway since it was reimbursed) and then we’ve been classifying subsequent expenses as “unreimbursed business expenses” — e.g., scrubs, testing, licensing, etc.

Click to expand...

To clarify - you counted her residency training license as "initial licensing" and her first unrestricted license as "subsequent licensing?"

[shantster]

jfoxcpacfp wrote:

Gas_Doc wrote:

I’m wondering if exam fees for licensing can be tax deductible? I understand that Pub 529, page 16 under Professional Accreditation Fees says “You can’t deduct professional accreditation fees such as the following…Medical and dental license fees paid to get initial licensing.” I think the important thing here is “initial,” as in your general medical license. Once you pass Step 3, finish an intern year, and get your own state medical license (not the resident one), you can technically deliver babies or perform Whipples by yourself if you so choose. Any other licensing after that would be considered “advanced” licensing in the eyes of the IRS, correct?

So do exam fees for more advanced licenses (ie my written and oral anesthesiology boards, my advanced TEE boards, etc) count under this “initial license” provision? I certainly wouldn’t count that, but I’m also not a CPA. What are your thoughts?

Click to expand…

The costs of qualifying you for a new profession are not deductible. That is why initial licensing fees are not deductible. I wouldn’t call subsequent years “advanced” licensing, just an ordinary and deductible business (employee) expense

shantster wrote:

I’m curious about this as well. It appears that publication only refers to schedule A deductions – would these same rules apply to people that are independent contractors and filing a schedule C? 

Click to expand…

Deductible in same way on sch C. Not to become a doctor, but to do business as a doctor.

Gas_Doc wrote:

So do exam fees for more advanced licenses (ie my written and oral anesthesiology boards, my advanced TEE boards, etc) count under this “initial license” provision? 

Click to expand…

Business/employee expense, not a cost of going into a new profession.

.

Click to expand...

How do you differentiate between "new profession" and "business as a doctor?" Does the broad term of "physician" count as my "profession" or does my specialty count as the "profession?"

 

If the former, I do understand how the expenses to get to intern year/residency would be considered the "new profession" and specialty boards "business as a doctor."

[jfoxcpacfp]

shantster wrote:

How do you differentiate between “new profession” and “business as a doctor?” Does the broad term of “physician” count as my “profession” or does my specialty count as the “profession?”   If the former, I do understand how the expenses to get to intern year/residency would be considered the “new profession” and specialty boards “business as a doctor.”

Click to expand...

The former. Your profession to the "outside world" (which would include the IRS) is being a physician. Your specialty is not a separate profession, at least as defined by tax law.

Here is the IRS bright line definition:

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests.

• The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.


• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it isn't qualifying work-related education if it:

• Is needed to meet the minimum educational requirements of your present trade or business, or


• Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

[shantster]

jfoxcpacfp wrote:

shantster wrote:

How do you differentiate between “new profession” and “business as a doctor?” Does the broad term of “physician” count as my “profession” or does my specialty count as the “profession?”   If the former, I do understand how the expenses to get to intern year/residency would be considered the “new profession” and specialty boards “business as a doctor.” 

Click to expand…

The former. Your profession to the “outside world” (which would include the IRS) is being a physician. Your specialty is not a separate profession, at least as defined by tax law.

Here is the IRS bright line definition:

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests.

• The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.


• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it isn’t qualifying work-related education if it:

• Is needed to meet the minimum educational requirements of your present trade or business, or


• Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

Click to expand...

Thank you for that detailed explanation. I wish I would have waited a few weeks to pay for my boards to get that on this year's taxes when I could deduct it.

For my oral boards coming up, I will have to spend a bunch of money on airfare, car rental, and hotel as the test is not in a convenient location. Would this be considered "work-related business expense?" I would not be able to take the boards without that travel.

Thank you!

[jfoxcpacfp]

Could you work as a physician without the oral boards? According to the initial post by  Gas_Doc, it appears you could technically do procedures, but I don't believe that is enough to get your first job (or open an office?). I apologize for not noting your status as a resident after observing that this thread was begun by a physician.

IF your expenses meet the above definition (I wouldn't go so far as to give an opinion without a contractual agreement as your CPA), then the travel would be deductible. You need to make that call and/or discuss with your CPA. I hope that helps.

[shantster]

jfoxcpacfp wrote:

Could you work as a physician without the oral boards? According to the initial post by  Gas_Doc, it appears you could technically do procedures, but I don’t believe that is enough to get your first job (or open an office?). I apologize for not noting your status as a resident after observing that this thread was begun by a physician.

IF your expenses meet the above definition (I wouldn’t go so far as to give an opinion without a contractual agreement as your CPA), then the travel would be deductible. You need to make that call and/or discuss with your CPA. I hope that helps.

Click to expand...

It's the same situation that Gas_Doc proposed. I am licensed to practice medicine and work as a physician (based all parts of USMLE, completed intern year, obtained my unrestricted license). The oral boards are for the second half of my subspecialty certification boards. We do not have to pass these boards in order to practice as a physician in our specialty. In fact, on the website for the boards, they state that people with certification "voluntarily participate in lifelong learning to keep their skills and knowledge current."

[Docbeans]

To ask a related q: What kind of CME activities are deductible by an independent contractor as business expense?.. Board Prep material? UpToDate subscription? Professional Organization membership? Journal subscription in one's own speciality? This education definitely maintains or improves skills needed in our present work.

Thanks!

[jfoxcpacfp]

Docbeans wrote:

To ask a related q: What kind of CME activities are deductible by an independent contractor as business expense?.. Board Prep material? UpToDate subscription? Professional Organization membership? Journal subscription in one’s own speciality? This education definitely maintains or improves skills needed in our present work.

Thanks!

Click to expand...

All of the above. I expense all CPE (CPA) and CE (CFP and NAPFA). With the exception of Board prep, you could consider all the equivalent of CME. Board prep - you can still practice w/o passing, correct? i.e. you're still a doctor? Deduct.

Once you are licensed in your profession, unless you are changing careers, education is for the most part deductible. Remember: "ordinary and necessary". If I decided to go back to school for my MBA, it would be fully deductible. (even so, not enough incentive for me to return to school.)

[Docbeans]

Thanks Johanna... I should have clarified, I meant board prep for recertification  

[The White Coat Investor]

My opinion is steps 1, 2, and 3 are not deductible but your board exams and future licenses and DEA registrations are.