Tax Breaks for Education — What Every Decorated Apparel Business Owner Needs to Know

Embroiderers, screen printers and promotional products distributors can profit from breaks in the tax code to educate their employees and themselves.
Aug 4, 2008

By Mark E. Battersby

Finding, hiring, training and retaining “smart” workers have long been key factors in the success of small businesses, including decorated apparel companies. Lawmakers have also recognized the importance of a smarter workforce and created a number of educational and training-related tax breaks and incentives. Those tax benefits allow every commercial embroidery, screen printing and promotional products business, large or small, to offer training and education as a “fringe benefit.”

Offering training and even educational benefits is an excellent method of attracting potential workers and keeping good workers in the business. Naturally, there is no tax “cost” to the employee receiving the training, and no restriction described in the code on where the training takes place. Therefore, it could justifiably occur on site, online or in a classroom at a school or trade show, such as the Imprinted Sportswear Shows or similar events, so long as it meets all other educational requirements.

The tax deduction for expenditures made to educate or train employees is a largely ignored provision in the tax code, but it applies to every business, including employee owners of their own businesses. Best of all, it’s deductible by the business and tax-free to the recipient.

The Formal Plan
Employers also can create smarter employees by paying for education with a slightly more formal plan, in which case they can deduct up to $5,250 of an employee’s educational costs each year. Conversely, for tax purposes, up to $5,250 per year in payments an employee receives for tuition, fees, books, supplies, etc., can be excluded from his income. Although the courses covered by the plan need not be job related, courses involving sports, games or hobbies may be covered only if they involve the employee's business or are required as part of a degree program.

Best of all, the decorated apparel business may claim a full tax deduction for the amounts paid, up to the ceiling, of course. Drawbacks include the necessity of a formal tuition reimbursement plan and, obviously, sufficient cash flow to fund that program.

Although these educational assistance programs don’t require actual or immediate funding by the screen printer or embroiderer, reasonable notification of the availability and terms of the program must be provided to all eligible employees. Naturally, the program cannot discriminate in favor of the owner or highly-compensated employees.

Education for the Self-Employed
Thanks to yet another provision in our tax law, every decorated apparel business owner not only can afford to offer educational benefits to his workers but also can benefit himself. Under the tax rules governing educational assistance programs, the term "employee" includes the majority of self-employed individuals within the imprinted sportswear industry. In fact, any individual who owns the entire interest in any unincorporated trade or business is treated as his or her own employer. An imprinted sportswear operation doing business as a partnership is treated as the employer of each partner who is an employee.

Regardless of who benefits the most from that training or education, it’s the one paying who claims a tax deduction:
•    The worker paying for the education necessary to do his or her job better enjoys a personal tax write-off.
•    The supplier training a decorated apparel business’ worker claims the tax-deductible cost of that training.
•    An employer training workers or offering an educational plan also enjoys a tax write-off — and a smarter, better-trained workforce.

Mark E. Battersby is a professional writer based in Ardmore, Pa., specializing in business and tax issues. To contact him, email: MEBatt12@Earthlink.net.

Editor’s note: Because tax laws are subject to change and often open to interpretation, it is always advisable to seek the advice of a professional accountant to be sure your filing is in compliance with the code.

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