College expenses

[Eternum]

Hi folks,

I am running IT consulting company and my son is starting tech. college this fall with computer science major. Assuming that he is an employee of my company, can company write of all or portion of his college educational expenses as employee professional development?

Thanks!

[Evan]

Up to $5,250 can be provided to employees as tax-free educational benefits each year. This is a deduction to the company. Anything in excess is taxable to the employee.

[Eternum]

Evan,

Thank you for pointing to the right direction. You are very helpful, as always.

[Eternum]

I spoke with my CPA about details of implementing education benefits plan and his answer was that I cannot do this because this "Does not apply to a related taxpayer". Could please anyone shed some light on this?

[Evan]

What type of entity is your business?

[Eternum]

S-corporation

[Evan]

Okay, than that is correct. The educational benefits you provide yourself, spouse, and family cannot exceed 5% of what you pay out for all educational benefits. If you have employees, I'd encourage you pay these benefits to others, but you'll be capped at 5% of that amount to pay yourself, spouse, or child. That's just the IRS rule.

[Eternum]

Is this regardless of the fact that spouse and child are employees of the company? I an not referring to them as family members, but as regular employees. And the other question is how this cap coincides with IRC 127 that requires that all employee should have an equal opportunity to participate?

[Evan]

Eternum -- Yes, the relationship between you and these "employees" is what creates the problem.

IRC 127(b)(3) provides the rule I cited above.

[Eternum]

Evan,

I understand that this does not depend on business structure -- S-corp, C-corp, LLC -- right?

IRC 127(b)(3) refers to spouses and dependents. We do not list our son as dependent in tax return. How IRS would define "dependent" in such case? He files his own tax return starting form 2012 fiscal year.