The school year is in full swing, and if you’re a teacher, you’ve probably already spent money out of your own pocket. Luckily, the IRS allows you to claim a deduction for many of these expenses. If you want to reduce your tax bill, here are some tax breaks for teachers you need to know.
Interest on Savings Bonds Used for Educational Purchases
Normally, when you have a U.S. or EE savings bond, you have to report the interest as income. However, if you are a teacher and you use the funds for classroom expenses, you don’t have to report the interest.
Educator Expense Deduction
Are you a K-12 teacher? Did you work at least 900 hours in a state certified public or private school last year? If you answer “yes” to both of those questions, you qualify for the Educator Expense Deduction.
Worth up to $250, the deduction applies to expenses such as paper, posters, paint, books, and any other supplies you buy for the classroom. If you teach physical education, you can also write off athletic equipment that you purchase for your classes.
As of 2016, you can roll expenses incurred for professional development or training into this deduction as well. However, if the school reimburses you for any of these expenses, you cannot write them off.
If you and your spouse are both teachers, you can claim up to $250 each for a total deduction of $500. This deduction reduces your income on paper, and that helps to reduce the amount of tax you owe. If your expenses exceed this amount, look into the deduction for unreimbursed employee expenses (explained below).
Unfortunately, when claiming the Educator Expense deduction, you have to reduce your expenses by the following amounts:
- Tax-Free Withdrawals from Coverdell education savings accounts.
- Distributions from qualified state tuition programs that aren’t reported as income.
- Savings bond interest not reported as income because you spent the money on classroom supplies.
To explain, imagine you earn $200 from an EE savings bond and you spend that entire amount on classroom expenses. As explained above, you don’t have to report the $200 as income, but you also cannot use those expenses when claiming this deduction.
Unreimbursed Employee Expenses
This deduction is not exclusively for educators, but it can help to reduce your tax liability. To claim this deduction, you must itemize. Unfortunately, if you claim the standard deduction, you can’t claim this deduction.
Basically, you can include necessary expenses incurred for your job that exceed 2% of your adjusted gross income. That includes the cost of supplies for your classroom, professional union dues, and even half of the travel and meal expenses you incur with your students. If your school requires you to buy a computer that you use for work, you can also include that expense.
Unfortunately, you cannot write off the cost of clothing unless you are required to wear a uniform or clothes that you wouldn’t wear anywhere else. Normally, teaching clothes don’t fall into this category.
To calculate your deduction, add up all of your eligible expenses. Then, multiply your adjusted gross income by 2%, and subtract that amount from your expenses. The difference is your deduction.
To illustrate, imagine your adjusted gross income is $60,000. Two percent of that amount is $1,200. If you spent $100 on lunches during required school field trips, you can deduct half that amount ($50). Then, if you spent $2,000 on classroom expenses and $650 on teacher union dues, you can claim all of those amounts. That brings your eligible expenses to $2,700. When you subtract 2% of your income, you have a total deduction of $1,500. For more information see IRS Publication 529.
Lifetime Learning Credit
This credit is also available to everyone, but as a teacher, it can really be helpful if you go back to school to learn more. The credit is worth up to $2,000 per year. You can claim 20% of the first $10,000 you spend on education. That only includes tuition and fees. You can’t include activity fees, insurance, or athletic fees. For example, if you spend $5,000 taking classes at a college, you can claim a $1,000 credit.
To qualify for this credit, your education expenses must be to get a degree or to improve your existing job skills. As of 2017, as long as your modified adjusted gross income is less than $65,000 for an individual or less than $130,000 for a married couple filing jointly, you can claim this credit. However, the amount of the credit is reduced if your income is over $55,000 for an individual or over $110,000 for a couple.
This is a nonrefundable credit. That means it reduces the amount of tax you owe, but it can’t trigger a refund. However, if you qualified for this credit in previous years but forgot to claim it, you may be able to claim it retroactively.
Claiming Credits and Deductions for Teachers
If you want to claim these credits and deductions, track your expenses throughout the year and keep your receipts. At tax time, give these receipts to your accountant or have them on hand when filling out your tax return. In most cases, you don’t have to send the receipt to the IRS, but you need to keep them for your records in case of an audit.