When are training costs deductible as special expenses and when as income-related expenses?

In principle, a distinction is made between training costs and further training costs. This distinction is crucial for determining whether the costs can be deducted only to a limited extent as special expenses or fully as income-related expenses.

1. Training costs – special expenses

Costs for a first vocational training or first degree are considered training costs for tax purposes. These can only be deducted as special expenses – however, up to a maximum of 6.000 Euro per year.

Important: Special expenses can only be taken into account in the year of payment. If there is no taxable income in that year, the deduction for special expenses does not provide any tax benefit.

2. Further training costs – income-related expenses

All costs incurred in connection with professional further training after the completion of the first training or first degree are considered further training costs. These can be fully deducted as income-related expenses if they are related to your job and serve to generate income.

This includes, for example:

• Retraining for a different profession,
• Further training in the current profession,
• Further training in a previously practised profession,
• A second degree.

3. First or second degree?

The tax treatment depends on whether it is a first or second degree:

• A first degree after leaving school is classified as initial training. The costs for this can only be claimed as special expenses up to 6.000 Euro per year – without loss carryforward.
• A second degree (e.g. a Master's degree after a Bachelor's degree or a part-time degree after training) is considered further training. The costs for this can be fully deducted as income-related expenses. A tax loss can even be carried forward to future years as a loss carryforward.

4. Loss carryforward for income-related expenses

Those who do not yet have an income but can claim training costs as income-related expenses (e.g. in a second degree) can claim these costs as anticipated income-related expenses. This creates a loss that can be carried forward to the first year with income and offset against it for tax purposes.

5. Example for clarification

Mr A and Ms B are both students without income.

• Ms B is studying for a first degree. She has 4.500 Euro in training costs. She can only deduct these as special expenses in the current year. However, since she has no income, this provides her with no tax benefit.
• Mr A is doing a second degree. He can claim the 4.500 Euro as income-related expenses and thus generate a tax loss. In the following year, when he has income, this loss will be offset against his income.

Result: Mr A pays less tax in his first year of employment than Ms B, even though both earn the same amount.

When are training costs deductible as special expenses and when as income-related expenses?

First degree: What are the chances of a full deduction for income-related expenses?

Expenses for the first vocational training and for the first degree as initial training, which are not completed as part of a training employment relationship (e.g. apprenticeship), are currently only deductible as special expenses up to a limit of 6,000 Euro, while the costs for any educational measures after completing vocational training, including a first degree after an apprenticeship, can be fully considered as business expenses (§ 4 para. 9, § 9 para. 6, § 10 para. 1 no. 7 and § 12 no. 5 EStG).

The Federal Constitutional Court has now ruled: The current legal regulation is constitutional. The fact that expenses for initial vocational training or for a first degree as initial training cannot be deducted as business expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).

First degree: What are the chances of a full deduction for income-related expenses?

Study costs: When are they tax deductible?

Expenses for a first degree after school or for initial vocational training outside of an employment-based training programme are only deductible as special expenses up to 6,000 Euro (§ 10 para. 1 no. 7 and § 9 para. 6 EStG). This limitation is constitutional. In other cases, study costs can be deducted without limit as business expenses or, for the self-employed, as operating expenses, for example in the case of a second degree or job-related training after initial training.

In the following cases, study costs are deductible as business expenses without limit:

• First degree after completed vocational training: For example, a degree after an apprenticeship (BFH ruling of 18.6.2009, BStBl. 2010 II p. 816).
• First degree as part of an employment-based training programme: For example, for officers, career soldiers or in dual study programmes.
• Second degree: After completing a first degree, if the degree is job-related.
• Master's degree: As it requires a completed Bachelor's or other degree, it is considered a second degree.
• Doctorate: The costs of a doctorate are deductible as business expenses if they are job-related.
• MBA: An MBA is also a second degree and the costs are fully deductible.
• Parallel degree courses: If a second degree course is continued after completing the first, the costs of the second degree are considered business expenses.
• Referendariat: For lawyers and trainee teachers, expenses after the first state examination are fully deductible.

Special case: Change of course without graduation: If a student changes course without completing the first degree, for example from law to medicine, the new course is not a second degree. In this case, expenses can only be deducted up to 6,000 Euro as special expenses.

Study costs: When are they tax deductible?

First degree: correctly deduct accommodation costs for your first degree?

Costs for a first degree after completing vocational training can be deducted as anticipated income-related expenses without limit.

However, costs for a first degree directly after A-levels (without prior training) can only be deducted up to 6.000 Euro per year as special expenses.

If parents pay the rent: Who can deduct what?

Students often do not have enough income of their own and are financially supported by their parents, who often also pay the rent. In practice, it is often the case that the rental contract is in the parents' name – for example, because landlords require it.

But what does this mean for tax purposes? Can the child deduct rent and estate agent's fees for the student accommodation as training costs, even though the parents pay?

Case study: Ruling of the Lower Saxony Tax Court

In a specific case (Lower Saxony Tax Court, ruling of 25.02.2016, 1 K 169/15), the rental contract was concluded in the father's name. The father covered all accommodation costs. The court distinguished between:

• Estate agent's fees: These were recognised as the child's income-related expenses.
• Rent payments: These were not recognised as income-related expenses.

Why is this? – Shortened contractual route

• Estate agent's fees: The father acted via the so-called shortened contractual route. He concluded the contract in his own name, but in the interest and on behalf of the child. Therefore, the child could claim the estate agent's fees as their own income-related expenses.
• Rent: Although the rent payments were also made via the shortened contractual route, this is a long-term debt relationship. For ongoing payments such as rent, it is assumed for tax purposes that the payer (in this case, the father) is paying for themselves and merely granting the child a right of use. Therefore, no deduction as income-related expenses is possible (see BMF letter of 07.07.2008, BStBl. 2008 I p. 717).

Tip: Conclude the rental contract in the child's name

As long as there is no supreme court decision on this issue, it is advisable to conclude the rental contract in the student's name. The parents can then:

• act as guarantors in the rental contract,
• or transfer the money to the child so that the child pays the rent themselves (so-called cash gift).

This can achieve better tax deductibility.

Legal situation: Income-related expenses or special expenses?

The Federal Constitutional Court ruled on 19.11.2019 (published on 10.01.2020, ref. 2 BvL 22/14 et al.) that the current legal regulation is constitutional.

This means: Costs for a first degree without prior training may not be deducted as income-related expenses, but only as special expenses up to 6.000 Euro per year.

Only for a second degree, postgraduate studies or studies after completing vocational training are income-related expenses without limit possible.

First degree: correctly deduct accommodation costs for your first degree?

What can be deducted in a dual study programme?

As part of the dual study programme, students complete several practical study semesters in companies outside the university. The student has concluded a training contract with such a company, which includes regulations on the obligations of the company and the student and even provides for a monthly training allowance.

(1) Until 2013, neither the university nor the training company was considered a "regular workplace". This is because an educational measure is always temporary and not permanent. Therefore, travel to the company can also be deducted at the actual amount or with the business travel allowance of 30 cents per kilometre travelled, and if absent for at least 8 hours, a meal allowance of 6 EUR can be claimed (BFH ruling of 16.1.2013, VI R 14/12).

(2) Since 2014, in the case of full-time study, the educational institution - i.e. the university or college - is legally declared as the "first place of work" - but only if the training takes place outside an employment relationship (§ 9 para. 4 sentence 8 EStG). However, dual study always takes place within the framework of an employment or training relationship. What applies then?

The OFD Niedersachsen currently explains how training in the dual system is to be assessed for tax purposes and what can be deducted as income-related expenses: Trainees are assigned to a specific company through their training contract or civil service trainees through their employment notice. This assignment covers the entire training period and thus the entire duration of the employment relationship (OFD Niedersachsen of 2.8.2016, S 2353-133-St 215).

• As this is a permanent assignment, the training company is the first place of work. Therefore, travel from home to there can only be deducted with the travel allowance of 30 cents per kilometre, meal allowances are not taken into account.
• If trainees or civil service trainees are temporarily seconded from their first place of work to another company, this is a business trip. Travel can be claimed with the business travel allowance of 30 cents per kilometre travelled, as well as meal allowances and accommodation costs.
• Travel between home and the training location as part of working groups is also considered a business trip. Travel expenses can also be claimed according to travel expense principles.
• If trainees or civil service trainees are temporarily seconded from their first place of work to attend courses at an educational institution, this is also considered a business trip.
• For business trips, meal allowances are limited to the first three months. However, it should be noted that the three-month period starts anew if there is an interruption of more than four weeks. This is particularly important for the course period.

Because a training contract is concluded with a company as part of the dual study programme or dual system, this is an employment training relationship. Therefore, training costs - even if it is a first degree - are not limited to 6,000 Euro as special expenses, but are deductible as income-related expenses without limit.

What can be deducted in a dual study programme?

Reimbursement of training costs are income-related expenses

The Bundeswehr allows temporary-career soldiers to study at university during their service at the Federal Government's expense, usually human medicine. The soldiers receive a salary but must commit to at least 10 years of service in the Bundeswehr as medical officers.

In many cases, however, soldiers leave the Bundeswehr after a short time to pursue a civilian career. The Federal Government then demands repayment of the training allowance received during their studies, which amounts to approximately 1,800 Euro per month, as well as subsequent specialist training costs.

To settle the invariably six-figure repayment sums, the Federal Government grants deferrals and instalment payments but charges interest of 4 percent on the deferred amounts. Recently, the Federal Administrative Court ruled in a number of cases that temporary-career soldiers who studied at university at the Federal Government's expense and left the Bundeswehr before the end of their commitment period must reimburse the Federal Government for their training costs (BVerwG rulings of 12.4.2017, 2 C 16.16; 2 C 5.16; 2 C 8.16, etc.).

• According to the BVerwG, the Federal Government is fundamentally entitled to reclaim the training allowance granted during the studies and the subsequent specialist training costs. The legally stipulated repayment obligation does not violate the former soldier's property rights but represents an appropriate balance for the legitimate but disappointed expectations of the Federal Government that the soldier would make the specialist knowledge and skills acquired at the Federal Government's expense available to it until the end of the commitment period.
• However, two corrections must be made to the Bundeswehr's calculation practice:
  • Periods during which licensed medical officers perform full service as doctors in a Bundeswehr hospital must lead to a reduction in the repayment obligation (so-called service quota). This also applies if they receive specialist training during this time.
  • The imposition of interest on the deferred amounts is unlawful. There is no legal basis for this.

Recently, it was reported in the press that a former medical officer must repay 57,000 Euro in study costs to the Bundeswehr (Spiegel online of 14.1.2020). The individual had committed to 17 years of service with the Bundeswehr, was able to study medicine at the Bundeswehr's expense with a substantial training allowance, became an officer, and was even allowed to undergo clinical training as a specialist in anaesthesia after his studies. He then served as an army doctor in crisis areas for several years, including Afghanistan. He later refused military service, was discharged early from the Bundeswehr, and is now required to repay part of his study costs.

Recently, the Düsseldorf Administrative Court ruled that the Bundeswehr's repayment claim is justified and that the former medical officer must repay 57,000 Euro to the Bundeswehr. The judges only sided with the claimant on one point: the Bundeswehr must grant him a deferral or instalment payment of the sum (VerwG ruling of 14.1.2020, 10 K 15016/16).

The repaid training costs are deductible as income-related expenses because they are objectively related to the profession. The expenses are economically caused by both the previous and the new employment relationship. On the one hand, they are inextricably linked to the previous employment, as the payment would not be conceivable without the agreement with the former employer.

On the other hand, the expenses also find their economic cause in the new employment relationship, as the repayment obligation would not have arisen without the new contract (BFH ruling of 7.12.2005, I R 34/05).

Similar to an agreed repayment of training costs in the event of a breach of contract is the agreement of a contractual penalty. The contractual penalty may become due if the employment is terminated in breach of contract before the end of a commitment period. Payments to fulfil a contractual penalty are fully deductible as income-related expenses or business expenses without any ifs or buts. Where the deduction is made is actually irrelevant.

On the one hand, the contractual penalty may be related to the subsequent self-employed work because it enabled it in the first place. On the other hand, it may also be primarily caused by the fact that the former non-self-employed work was not continued in accordance with the contract. In that case, the payment would be considered as subsequent income-related expenses (BFH ruling of 22.6.2006, BStBl. 2007 II p. 4).

Reimbursement of training costs are income-related expenses

Which training costs can I deduct?

You can deduct all costs incurred in connection with your training as training expenses. This includes in particular participation fees and learning materials.

You can deduct the following as participation fees:

• School fees,
• Fees,
• Course,
• Course, seminar fees,
• Admission and examination fees.

You can deduct these fees in full. If you purchase items for the training, you can deduct them as work-related items. This includes, for example:

• Specialist literature (trade magazine, trade magazines, trade journal, trade journals),
• Stationery,
• Briefcase,
• Computer,
• Desk,
• Desk lamp,
• Bookshelf,
• Dictation machine,
• Work clothing (lab coat).

Please note that you may only use these learning materials within the scope of the training; private use is not permitted.

You can also deduct your travel expenses. You can apply the travel allowance (0.30 Euro per kilometre driven) or the actual car costs.

You can also declare meal allowances and overnight accommodation costs in your tax return.

In addition, you can declare so-called incidental travel expenses in your tax return. These include, for example:

• Parking fees,
• Costs for luggage storage,
• Costs of a car accident on a journey related to the training,
• but also the material costs for a masterpiece or journeyman's piece in the craft sector or
• Interest on loans for financing the training.

In our opinion, the home office allowance / daily allowance of 6 Euro per day (max. 1.260 Euro) is also available to those who are studying, training or furthering their education and learn more at home on their PC than in lectures or classroom instruction.

Which training costs can I deduct?

What can I deduct for full-time training or education?

Expenses for education or training can be claimed for tax purposes as special expenses, income-related expenses, or business expenses. The type and aim of the educational measure, as well as your personal situation, are decisive.

1. Special expenses for initial training or first degree

• Initial training without employment or first degree: max. 6.000 Euro annually as special expenses (§ 10 Abs. 1 Nr. 7 EStG)
• No loss carryforward possible

2. Income-related expenses for further training or training with employment

• Unlimited deduction as income-related expenses possible
• Applies to:
  • second vocational training
  • training in an employment relationship (e.g. traineeship)
  • professional development
• Loss carryforward possible

Typical expenses:

• Travel costs
• Additional meal expenses
• Overnight accommodation costs
• Travel expenses
• Study materials, tuition fees

3. Travel expenses or commuting allowance – what applies when?

3.1 Off-site work: travel expenses fully deductible

For part-time training outside the workplace, this is considered off-site work. Deductible are:

• Travel costs (30 cents/km or actual costs)
• Meal allowances
• Overnight accommodation costs
• Travel expenses

3.2 Full-time training: only commuting allowance

Since 2014: For full-time education without employment, the educational institution is the first place of work (§ 9 Abs. 4 EStG).

• Only commuting allowance (30 cents per kilometre)
• No meal allowances
• Applies equally to training and education

3.3 What is a full-time educational measure?

Full-time applies if no employment is undertaken. Permissible are:

• up to 20 hours per week
• Minijob
• short-term help

4. Current BFH ruling: Part-time study is not full-time education

The Federal Fiscal Court has ruled: A part-time study is not a full-time educational measure, as it is designed to be compatible with employment.

Consequence: Travel costs can be deducted according to travel expense principles, not just with the commuting allowance. (BFH ruling of 24.10.2024, VI R 7/22)

What can I deduct for full-time training or education?

How are study costs recognised?

Expenses for a first degree after completing secondary education are currently only deductible as special expenses up to a limit of 6,000 Euro, whereas the costs for a second degree or a first degree following vocational training can be fully considered as business expenses.

The deduction for special expenses only reduces tax if there are other incomes - including those of the spouse - from which the expenses can be deducted. If this is not the case, the supposed tax benefit is ineffective. Any training costs that cannot be offset against income in the year of payment are lost for tax purposes.

The Federal Constitutional Court has declared the legal regulation to be constitutional. The fact that expenses for initial vocational training or a first degree cannot be deducted as business expenses does not violate the Basic Law (BVerfG decision of 19.11.2019, 2 BvL 22/14, 2 BvL 23/14, 2 BvL 24/14, 2 BvL 25/14, 2 BvL 26/14, 2 BvL 27/14, published on 10.1.2020).

How are study costs recognised?

Can I deduct travel expenses for training?

If you participate in professional training, you can claim the travel expenses for tax purposes. In this case, the travel expenses are fully deductible. Unlike the commuter allowance, you can claim 30 cents per kilometre travelled.

To record the travel expenses (0.30 Euro per kilometre travelled), simply create an entry on the "Training Costs" page: "Travel expenses: X km on Y days". Enter the result of your own calculation as the amount, e.g. Travel expenses: 70 km on 5 days >>> 70 km x 0.30 Euro/km x 5 days = 105.00 Euro = deductible travel expenses.

Can I deduct travel expenses for training?

When are language courses tax-deductible?

Expenses for a language course are tax-deductible as business expenses if you need the language skills specifically for your job or if you are planning a career change and the new job requires knowledge of a foreign language.

A professional reason exists if you work in a field with foreign contacts, frequently go on business trips abroad, use the foreign language as a working language, etc.

If the language course takes place abroad, you can also deduct the costs for tax purposes if there is sufficient professional reason. This applies not only to intensive courses but also to courses that only provide basic or general knowledge of a foreign language. Learning the general colloquial language can also be professionally motivated if it is sufficient for your work.

In addition to seminar costs, course fees and examination fees, travel expenses, meal allowances, accommodation costs if applicable, expenses for literature, learning software, etc. are also tax-deductible as business expenses.

Tip: The new home office allowance of 6 Euro per day (max. 1.260 Euro) is also available to those who are studying, training or furthering their education if they study at home and do not visit the educational institution or training location on that day.

When are language courses tax-deductible?

Should the work-related expenses be reduced by the master's bonus?

Do the professional expenses need to be reduced by the Meisterbonus?

Training for a master's qualification is expensive, but the expenses are tax-deductible as professional expenses. In several federal states, there has been a so-called Meisterbonus for some years, which is granted to graduates of a master's examination as an incentive for professional development. A common question is: Does this bonus have to be credited against professional expenses?

Tax treatment of the Meisterbonus

In Bavaria, since 1 September 2013, all successful graduates of vocational master training have received a Meisterbonus of 1.000 Euro. Other federal states such as Saxony, Rhineland-Palatinate, and Mecklenburg-Western Pomerania have introduced similar programmes to promote professional development.

The Munich Tax Court has ruled that the Meisterbonus does not have to be credited against deductible training costs. The bonus is not taxable income, as it is neither linked to a type of income nor to the generation of income. The bonus is paid solely on the basis of the successful completion of the training, regardless of the actual expenses incurred (Munich Tax Court, judgment of 30 May 2016, 15 K 474/16).

No reduction of professional expenses

The tax authorities have accepted the court's decision. The Meisterbonus is not only tax-free but is also not taken into account when deducting professional expenses. This means that you can claim your training costs in full as professional expenses without the bonus being credited (Bavarian State Office for Taxes, directive of 6 July 2016).

Examples from other federal states

In Saxony and Mecklenburg-Western Pomerania, there are also similar bonuses for master graduates, such as the Meister-Extra. These are also granted tax-free and do not affect the deduction of training costs as professional expenses. Reference is also made to the decision of the Bavarian State Office for Taxes.

Loan waiver for training

Another issue is the waiver of loans after passing the master's examination. If training was funded through low-interest loans and parts of the loan are waived after passing the exam, the question arises as to whether this waiver is taxable.

The Lower Saxony Tax Court initially ruled that such a loan waiver remains tax-free, as it does not constitute taxable income. However, the Federal Fiscal Court (BFH) overturned this ruling in an appeal (BFH judgment of 23 November 2023, VI R 9/21). The loan waiver must now be recorded as income in the type of income where the professional expenses were deducted.

BFH ruling on loan waiver

The BFH justified its decision by stating that the waiver is based on professional reasons, as it is solely linked to passing the exam. Since the professional expenses for the course and examination fees were previously claimed, the loan waiver must be recorded as income in the year of the waiver.

Conclusion

• Meisterbonus: The Meisterbonus is granted tax-free in most federal states and does not need to be taken into account for professional expenses. Training costs can therefore be deducted in full as professional expenses.
• Loan waiver: If a loan was taken out to finance the training and partially waived after successful completion, the waiver is considered income that must be taxed if the corresponding expenses were previously deducted as professional expenses.

Should the work-related expenses be reduced by the master's bonus?

When are personality development courses recognised?

Courses aimed at personality development not only impart professional knowledge but also skills useful for personal development.

In such cases, tax offices often do not recognise the costs as business expenses.

However, the tax office must accept such courses and seminars, from which you personally benefit, in the following cases:

• The course must be primarily tailored to the specific needs of the profession practised.
• The group of participants must be homogeneous, i.e. the course participants must have similar professional interests due to the nature of their work.

It is not necessary for all participants to belong to the same professional group. What matters is that the course participants have similar professional interests due to the nature of their work.

The group of participants is therefore also considered homogeneous if the participants belong to different professional groups but hold management positions in their respective fields and are interested in the courses and seminars due to these leadership roles (BFH rulings of 28.8.2008, BStBl. 2009 II p. 106 and 108).

Participation in seminars that mainly serve personal development is considered predominantly private. Consequently, the seminar fees are not deductible as business expenses or professional expenses. The Düsseldorf Finance Court recently ruled in this sense (judgment of 15.12.2021, 10 K 2085/17 E). Previously, the Thuringia Finance Court had similarly denied the deduction of costs in a similar case (judgment of 13.11.2019, 3 K 106/19).

The Düsseldorf judges' ruling was based on the following facts: The claimant, a prospective self-employed IT consultant, attended the seminar "The Millionaire Mind Intensive" with the modules "Guerilla Business Intensive", "Train the Trainer", "Never work again", "Freedom Trader Intensive" and "Enlightened Warrior".

The events were intended to show participants ways to become more financially successful in life. The module "Never work again" taught how to replace income from active work with passive income. The seminar and ancillary costs amounted to over 20.000 Euro.

According to the judges, the expenses are not deductible as business expenses or professional expenses because there is no sufficient connection between the seminar content and the subsequent consultancy work. Rather, the seminars attended were essentially events aimed exclusively or at least partly at changing one's own views and attitudes.

When are personality development courses recognised?

Does attending an art exhibition count as training?

Attending cultural events such as concerts, theatre performances, museums, readings, etc., enhances general education and is therefore generally considered part of private life. This applies even if such visits are useful and beneficial for your profession (BFH ruling of 8.2.1971, BStBl. 1971 II p. 368).

Currently, the Baden-Württemberg Finance Court has ruled that for an art teacher, the costs for visiting art exhibitions and private views cannot be deducted as business expenses, even partially. These are cultural events and participation in social life, similar to attending concerts or theatre and cinema performances, which are attended by a broad interested public and therefore not considered for tax purposes. There is no evidence of an almost exclusive professional reason that would justify deviating from this principle. Partial consideration as business expenses is also excluded because it is not possible to divide them into professional and private parts due to a lack of objective criteria (FG Baden-Württemberg of 19.2.2016, 13 K 2981/13).

The case: A senior teacher teaches Fine Arts at a grammar school. She has also been working as a freelance painter for many years. From her work as an artist, the claimant has so far only incurred losses, which were not considered for tax purposes due to a lack of profit-making intent (so-called hobby). In the years in question, the teacher attended various art exhibitions and private views where artists exhibited their works and new developments and techniques in the field of art were presented.

She claimed 50% of the costs for attending the events (art club membership fees, entrance fees, travel expenses and parking fees) as business expenses for income from employment. Both the tax office and the finance court rejected the recognition of the costs as unfounded.

Only in exceptional cases can such expenses for attending cultural events be deductible as business expenses if they are "expressly designed for training purposes" (BFH ruling of 8.2.1971, BStBl. 1971 II p. 368).

Does attending an art exhibition count as training?