A client of mine faced an IRS challenge when he took expensive personal development classes and attempted to deduct those expenses against his real estate properties.
Unfortunately, he handled the initial IRS audit meetings himself and made some statements that were later used against him. This was a case more of poor audit strategy then whether there was a legitimate expense or not.
Most of the time, personal development is considered a deduction against a legitimate business provided it can be shown that this will make you a better leader, investor or worker for your business.
However, you can’t take a deduction for something that prepares you for your investments or business. For example, a class on public speaking would be deductible for your business if you plan to speak to groups for marketing, education, training or any of the other possible benefits you could have with your business.
A course on public speaking wouldn’t be deductible if you don’t have a business yet but are planning one.
A course on how to do due diligence on real estate purchases would be deductible if you already have real estate investments. You’re just going to become better at picking them.
The course is not deductible if you take it before you own real estate.
If it’s something new, it’s not deductible. If it’s something to make you better, it probably is.
In this case, it was a little trickier because the business was brand new. Had it started before the client took the course? That should have been the audit issue and if it had been contained just to that, then it’s something he could have won.
However, he made that call himself and said something that got him targeted for an expanded audit.
There are a couple of lessons here for anyone who has a business or is planning one or who has real estate investments or is planning to. And, of course, a key lesson for anyone who gets the dreaded IRS audit notice.