Tax time often makes people a little nervous when it rolls around. Some people must pay while others get refunds, but Uncle Sam always gets his share. Unfortunately, educators are no exception. However, there are special breaks that teachers can take advantage of.
These tips will help maximize deductions for teachers while minimizing taxable income. Tax time doesn’t have to make you nervous, if you prepare correctly and take advantage of the special rules for teachers.
Educator Expense Deduction
Most schools operate within tight budget constraints, and teachers must often dip into their own pockets to fund classroom supplies. Educators who are K-12 teachers working at least 900 hours in a state-certified public or private school facility qualify for an Educator Expense Deduction of up to $250.
This deduction applies to expenses that teachers purchase for their classroom during the school year. Classroom supplies such as paper, pencils, books, paints and even software can qualify for this deduction.
The guidelines are pretty inclusive, as long as items are appropriate and purchased directly for use in the classroom. Physical education teachers can use this deduction towards the purchase of athletic equipment for the students as well.
These expenses are only deductible if you were not reimbursed for them. If supplies are purchased using distributions or savings bond interest, then they are not deductible. However, the monies used to buy them reduces your taxable income.
Miscellaneous deductions can be claimed by people in any profession, and they can reduce total tax liability. The total of these expenses must be more than 2 percent above your adjusted gross income, and they must be required to perform your current job duties.
However, the amount may exceed $250. For example, if your adjusted gross income is $50,000, then 2 percent of that is $1,000. Any amount over $1,000 is deductible as a miscellaneous expense. If your unreimbursed expenses for the year total $1,500, then you can take a miscellaneous deduction of $500.
To claim this deduction, you must itemize your expenses and save receipts. Items that fall into this category may include licensing fees, union dues and professional journal subscriptions that you paid for during the year.
You can even claim classroom supplies and software as a miscellaneous deduction, subject to the amount that is 2 percent above your adjusted gross income.
Savings Bonds for Educational Purposes
There are multiple ways that you can use savings bonds for educational purposes. If you purchased U.S. or EE savings bonds after the age of 24, then you can use the interest to fund classroom expenses.
The best part is that you don’t have to report the amount of interest used to purchase goods for the classroom as part of your taxable income. That same amount may not be claimed as an educator expense or miscellaneous deduction, but it can reduce the amount of income that you pay taxes on.
The interest must come from U.S. or EE savings bonds reported on IRS form 8815 that were issued after 1989. You may also be able to exclude some, or all, of the interest paid on the redemption of series EE bonds if it was used to fund higher education.
You must have been 24 years old before you purchased the bonds and you must have incurred the educational expenses during the same year the bonds are redeemed. The cost of books or room and board do not qualify for this particular tax exclusion.
If you use both the principal and interest to pay for qualified educational expenses, then the interest may be excluded from your adjusted gross income.
Lifetime Learning Credit
While the Lifetime Learning Credit is available to everyone, it can really be helpful for teachers who go back to school to improve their skills or get a higher degree. People can claim 20 percent of the first $10,000 spent on educational expenses, up to a $2,000 maximum, for a nonrefundable credit.
This credit directly reduces the amount of taxes owed, but it cannot trigger a refund. Tuition and fees from an institution of higher learning qualify for this credit. However, insurance, activity and athletic fees are not eligible.
To qualify for this credit, you must be actively seeking a degree or improving your skills for an existing job. Individuals must have an adjusted gross income of $65,000 or less, and couples can make up to $130,000 if they file a joint return.
The credit is reduced for individuals with an adjusted gross income of over $55,000 and couples who make more than $110,000. One of the best aspects of this credit is that it may be claimed retroactively.
If you qualified for this credit in previous years but forgot to claim it, there may still be time. Just remember, this credit will not trigger a refund.
Always consult with a tax professional if you have questions about any qualifications for any tax credits or deductions.