License Fee Income Tax Deductions

Private eyes, doctors, lawyers and funeral directors are among the professions that require state licensing. Other careers require a federal license, and opening a business in a particular town or county often requires taking out a local license. When you pay tax on your business income, you can list any license fees you pay as a valid deduction.

Education

If you take classes to prepare for a licensing exam or certification test, the cost of class may not be deductible. The IRS rule is that education to qualify you for a new career is not a write-off. Attending law school or med school, for example, is not deductible, nor are cram courses for the bar exam. Other training for a new career, such as Texas's Educator Preparation Programs for teachers, doesn't qualify either.

Qualifying Classes

If you're already in business, any continuing education you have to take to keep your license counts as a write-off, along with the license renewal fee itself. You can also write off education for a certification test if becoming certified will improve your business. As long as your classes or your license relate to the work you're already doing, it's deductible. Tuition, books, fees and the costs of research are all covered by the deduction.

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Local Licensing

Many local governments require a license from businesses operating in their jurisdiction. This is a permit your business needs to operate legally; if you have stores or offices in multiple cities or counties, you may need multiple permits. The amount is typically based on your revenue and your line of business. Some areas also charge extra for working out of your home. If you're caught operating without a permit, you pay a fine. Unlike the license fees, which are fully deductible, there's no write-off for fines.

Employees

If you reimburse your staff for getting licensed or certified, your costs are deductible. You can write off the cost of most classes they take as an educational-assistance benefit. Employees who don't get reimbursed can claim the costs of qualifying work-related education as an itemized "2 percent" deduction. To claim it, an employee has to add together all such deductions, subtract 2 percent of her adjusted gross income, and deduct the rest. She takes the write-off on Schedule A.

References

• Internal Revenue Service: Tax Benefits for Work-Related Education
• Texas Education Agency: Becoming a Classroom Teacher in Texas
• Entrepreneur: Business License
• IRS: Employer's Tax Guide to Fringe Benefits

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