It’s that time of year again—time to file your taxes. We all know people who can’t wait to file so they can get their refund, and others who drag their feet until April 15th, then on extension until October 15th and just can’t get it done.
But as a teacher, you’ve got some unique advantages when it comes to tax time. Some tax benefits are only available to educators, and other general tax benefits can be used by educators to save even more money. By utilizing these lines in the tax code, you can lower your tax bill and, potentially, receive a larger refund.
Educator Expenses Deduction
For those who do not get reimbursed on their purchases for the classroom, $250 can be deducted from your income. This reduces the amount of your income that is taxed. This deduction is limited to $250 in classroom supplies, but if you are married to an educator, it can be doubled-up to a maximum of $500. You need to have proof that you have spent money on these things (i.e. receipts), but even if don’t spend $250, you can use whatever amount that you did spend.
For those of a technical nature, this is known as an “above-the-line deduction”, so even if you don’t itemize on your taxes, you can still use this deduction. In order to use this deduction, you do need to have spent 900 hours in the classroom that tax year.
Unreimbursed Employee Deductions
If you do spend over $250 on classroom supplies, don’t worry. If you itemize on your tax returns, then the amount of unreimbursed expenses above $250 can be deducted. One thing to note about this is only the amount that exceeds 2% of your adjusted gross income (AGI) can be deducted—the amount below this is not counted. So, what can be included in these unreimbursed purchases?
- Books and Newspapers—for the classroom or personal development.
- Mileage—for time spent traveling to teach in other locations or to sports events for which you coach. It does not include mileage spent on commuting.
- Software & computer equipment—if it is mandated that you purchase software to teach your lessons, this can be deducted. If you spend time in your home office researching and sending emails for work purposes, track the time and then this can be deducted.
- Professional Development—if you pay to attend conferences or development days, you can deduct the expenses associated with this. This can be parking, food, enrollment fees, mileage, and accommodation.
- Work Clothing—if your class requires you to wear safety gear that you have to purchase yourself then, you guessed it, it can be deducted when you itemize on your return.
Student Loan Interest
Regardless of if you itemize, the interest you pay on your student loans can be deducted. It’s another “above-the-line deduction”, so it’s more powerful in reducing your tax bill than some others mentioned here.
Education Credits and Deductions
For those who are gaining further education and having to pay for it out of their own pocket, you can either use the Education Tax Credit, American Opportunity Credit or Lifetime Learning Credit. However, only one of these can be used at a time and are subject to income requirements—you’ll need to do the math to determine which one you’re eligible for and is most valuable for you.
- Education Tax Credit – this reduces the income subject to taxation by $4,000, and is for expenses paid for undergraduate and post-graduate It doesn’t include room & board, but does include most other expenses paid to acquire the education. As an item that can be used even if you don’t itemize, it’s the most powerful deduction from a dollar perspective.
- The American Opportunity Credit is a tax credit of up to $2,500 on tuition, fees and course materials for an undergraduate You earn the credit on 100% of the first $2,000 paid, and then 25% of the next $2,000. For example, if you paid $5,000 to attend a class (or if your child did), then the full $2,500 credit would be available. However, if the class cost $2,750, then $2,000 would be available for the first $2,000 spent, but only $187.50 credit for the $750 spent thereafter.
- The Lifetime Learning Credit is available for each student in a household, regardless of what level of post-secondary schooling they’re in. It is used to reduce the overall income subject to taxes by a maximum of $2,000. Therefore, if there are four students in the household, only $2,000 of credit would be applied, not $8,000.
As you can see, there are many resources that are available to educators to reduce their taxes. However, some of them do get complex and it can be easy to make mistakes when filing your own return. If you have questions about which of these items apply to you, please contact a tax professional.