Why Educators Should Wait To File 2014 Taxes
Many tax deductions for educators are currently in limbo. We’ll help you navigate your 2014 tax return.
Two years ago the prospect of going over the fiscal cliff kept everybody on tenterhooks about what their tax deductions would be. A last-minute tax bill preserved many of the tax benefits NEA members have come to rely on, but many were extended for the 2012 and 2013 tax years only.
“We have that same suspense again this year,” says Jackie Perlman, principal tax research analyst at H&R Block’s Tax Institute.
Until Congress acts again, Perlman notes, there is no certainty about what will happen for the 2014 tax year. Altogether, some 55 tax benefits expired, including a few in particular that concern educators, like the $250 above-the-line deduction for classroom supplies and the tuition and fees deduction.
Educators may have also benefited in the past from the state income tax deduction or other expired breaks, even though those breaks don’t target them specifically.
“Congress may act to extend these benefits this year or even early next year,” Perlman says, “so educators should keep up with any potential changes before filing their 2014 tax return.”
Generally, tax extender bills, as they are known, are retroactive, so any new legislation would cover the period starting Jan. 1, 2014.
The $250 deduction for educators for classroom supplies, which expired at the end of the 2013 tax year, is a particularly advantageous deduction because it is an above-the-line deduction on Schedule A, which means you don’t have itemize to take it and it reduces your overall adjusted gross income (AGI).
One other important fix in that earlier tax bill was the removal of the 60-month limit on deducting the interest on student loans, and that was a permanent fix.
One caveat to keep in mind is that many provisions of the tax code have income caps and phase-outs and other wrinkles that may affect your actual tax liability. Be sure to work with a tax advisor or reliable tax software that clearly addresses your situation, especially if you are in the higher income brackets.
Keeping receipts or a careful log is critical for the classroom supplies deduction and other tax benefits.
Other situations faced by educators preparing their taxes include:
Income from outside work like a summer job or tutoring.
If there is no additional withholding on this outside work, you want to be sure to avoid a penalty for under-withholding—i.e., when your overall tax liability exceeds the amount of tax you had withheld by certain margins.
If this is the first year you have had extra income, there won’t be any penalty, because your withholding at work will cover 100% of your previous year’s income. If you regularly have extra income, there are a couple of options to make sure you avoid a penalty. One is to increase your withholding in your permanent job, either by reducing the number of exemptions you take (which increases the amount of withholding) or by specifying a certain additional amount on your W-4 to be withheld. The other option is make quarterly payments of estimated tax on the additional income.
The outside income should be reported on a Schedule C, where you can also deduct any expenses associated with the outside job. You are also liable for “payroll” taxes (these are the contributions to Social Security and Medicare) on the extra income, which is calculated on a Schedule SE.
Other unreimbursed employment expenses.
If the $250 educator’s expense deduction is not extended, you could possibly deduct all expenses for classroom supplies as unreimbursed employment expenses, which are defined as expenses that help you conduct your job even if they are not required.
However, these deductions are subject to the 2% limit on itemized deductions – this means you can only deduct the amount that exceeds 2% of your AGI.
If your AGI is $50,000, for instance, you could only deduct expenses that exceed $1,000, even if you are already itemizing deductions for mortgage interest or other reasons.
The same applies for expenses like dues to unions and professional associations or subscriptions to publications.
The rules for deducting expenses for a home office are fairly strict (as well as for equipment like computers). The home office space must be used exclusively for work purposes, which is a tough criterion.
If you take courses that you pay for yourself, whether or not they are required for certification, there are a couple of possibilities for deducting that expense. The earlier bill renewed the deduction for tuition and fees for college education, but again, only through 2013. This tax benefit would allow you to deduct up to $4,000 a year (the amount is lower for higher income brackets), and this again is an above-the-line deduction on Schedule A. So not only is it not subject to the 2% rule, it reduces your AGI for other deductions that are itemized.
Another option, which is a permanent part of the tax code, is the Lifetime Learning Credit for 20% of education expenses up to $2,000. This is a credit, so it is taken off your tax liability dollar for dollar. However, it is nonrefundable, which means you have to have some tax liability for it to count against. You can only take one of these options or the other, not both.
* NOTE: All of the information in this article is accurate as of October 2014.
This article was published in NEAchieve!, our monthly e-newsletter. Sign up to receive helpful tips and information delivered to your email inbox.