Professional license deductibility?

"Salmon Egg" wrote

The best place to deduct it would be on the business portion of your return - if you had business activity. In years that you do have business activity, take the expense as a deduction there.

Otherwise it falls to Schedule A as a misc. deduction, and that's an "at best" situation. That portion of the schedule has a 2% of AGI floor to clear before any of it can add to your itemized deductions.

If there's an ongoing business (whether or not there's any income in a given year), wouldn't it still be deductible on a Schedule C?

What is the minimum standard for an ongoing business? Can someone decide "I have enough savings to take a year off and enjoy myself, and I'd rather do that now than wait until I retire" and still consider the business to be ongoing?

Seth

There is no bright line test. The primary (not the only) factor is whether you have a profit motive and act on that motive. My observations are that the IRS will look at whether or not you are trying to make a profit (do you hold yourself out as a PE available for hire; place ads in the yellow pages; establish relationships with realtors, etc.); how much time you spend on the activity; whether you are dependent on the income from the activity; and whether you operate it like a business.

Pass the above test(s) and you get to deduct the expense on Schedule C. If not, Schedule A misc. subject to the 2% floor.

The IRS presumes you're a business if you show net income in three years out of five.

Having the PE license is something like having a college degree. There is some prestige to having it. For example, I was doing telephone consultation under the sponsorship of a consulting corporation. The terms of service were that clients could not hold me liable for their losses caused by malpractice. The PE was a banner to attract clients. Nevertheless, because of corporate shield, I would not need a PE to be legal.

In that sense, sticking the letters PE after your name would have a cachet like sticking the letters PhD after your name.Once you get a degree like a PhD, there are no more expenses to maintain the PhD degree itself. A PE, however, requires periodic relicensing fees whether you use it or not. I am pretty sure that my conjecture as to what is fair with deductibility is different from what Congress has in mind.

Bill

It's a license. Aren't there things that only a licensed PE can do, like sign off on construction plans?

The IRS page I linked to refers to ordinary and neccesary expenses. Seems to me that if you at least occasionally do things that only a PE can do, the license fee is necessary.

R's, John

Not exactly, even though that is what the IRS says at the link you provided. When the IRS suspects an activity is not engaged in with the intent of making a profit, the law places the burden of proof upon the IRS if the activity made a profit in three of five consecutive years.

That said, I'm not sure how much relevance the hobby loss rules have to the OP's question.

Unless it's so infrequent or with such little energy that it's considered a hobby.