Can I Deduct a Professional License on My Taxes?

It doesn't matter how much you make: no one enjoys spending hard-earned money on professional licenses. However, you may qualify to write off those costs on your income taxes. The size of your deduction may depend on whether you work as an employee or whether you've got your own business.

Work-Related

To be deductible at all, your professional licenses must be "ordinary and necessary" for your work, according to IRS Publication 529. This means that the license must be a generally accepted expense in your industry, and it needs to be appropriate and helpful to your business. For example, if you have a professional pilot's license because you're a pilot for an airline, that's clearly related. However, if you aren't still working as a professional pilot, keeping up your professional license isn't going to help you on your taxes.

When to Deduct

You can deduct the cost of the license in the year that you pay the expense to a state or local government. For example, if you buy a license that it good for one year in June 2013, you can deduct the cost on your 2013 tax return even though it will be good through May 2014.

Business Expense

If you run your own business as a sole proprietor, you can write off your professional license fees on Schedule C. List the type and cost of each license as "Other Expenses" in Part V and then transfer the total to line 27a. This deduction not only reduces your income taxes, but also your self-employment taxes because it comes out of your business income.

Employee Expense Deduction

If you're an employee but your boss don't pay for your work-related professional licenses, the good news is those costs qualify as an unreimbursed employee expense. The bad news is that unreimbursed employee expenses can be written off only to the extent that they exceed 2 percent of your adjusted gross income. For example, if your adjusted gross income is $150,000, you have to have $3,000 in unreimbursed employee expenses before you can start claiming a deduction. However, you can combine your license costs with other unreimbursed employee expenses, such as dues to professional societies or the cost of subscriptions to trade magazines related to your work.