Recently, one of our clients contacted us about hiring her daughter to work in her business. Her daughter is currently in college and our client was curious if she could claim her daughter’s education costs as a business expense. My client’s daughter is 21 years old and not her dependent.
Thanks to recent tax legislation, our client can actually write off up to $5,250 in educational assistance (which does not have to be job-related). Even better, my client can exclude the education assistance up to $5,250 from her daughter’s employment income for the year.
Our client’s company can take a deduction for education assistance that includes any form of instruction or training that improves or develops the capabilities of an individual. This means that our client can pay for her daughter’s tuition, fees, books, supplies, and school equipment.
To take advantage of this tax deduction, however, my client’s child needs to satisfy the following conditions:
- Is age 21 or older,
- Is a legitimate employee of my clients business,
- Is not a more-than-5-percent owner of the business, and
- Is not my client’s dependent.
One thing to note is that the age requirement doesn’t apply if a grandparent hires a grandchild. So this creates an incentive for grandparents hire their grandchildren in the business.
Since our client’s daughter qualified, we helped our client set up an educational assistance program under Internal Revenue Code Section 127. This program generally must meet the following rules:
- Provide benefits exclusively to employees of the employer;
- Provide qualified educational assistance benefits;
- Be a separate written program established by the employer and disclosed to employees;
- Not allow employees a choice between educational assistance benefits and additional taxable income; and
- Not discriminate in favor of highly compensated employees.
If you have a child or grandchild that you’d like to help pay for their education through your business, then contact Gedeon Law & CPA today for assistance with complying with the Code’s requirements.
