Are You Missing Out on These Educator Tax Deductions?
Read this before you file your tax return. We’ll help you claim your educator deductions so you can get back as much money as possible.
A year ago, the prospect of going over the fiscal cliff had everybody on edge about what tax deductions would be. A last-minute tax bill preserved or extended many of the tax benefits NEA members have come to rely on, both retroactively for 2012 and for the 2013 tax year.
“We don’t have that kind of suspense this year,” says Jackie Perlman, principal tax research analyst at H&R Block’s Tax Institute.
The government shutdown in October does mean that the tax filing season will be delayed by a couple of weeks. The IRS will start processing returns on Jan. 31, 2014, which is 10 days later than normal.
Until Congress acts again, Perlman notes, there’s no certainty about what will happen in 2014. But for 2013 returns, which are due by April 15, 2014, the modifications and extensions of last year’s tax bill are still applicable.
That bill maintained the lower tax rates from the Bush era tax cuts for all but the top brackets, and it also permanently fixed the alternative minimum tax so that it no longer affects middle-income earners.
The $250 deduction for educators for classroom supplies was renewed both for 2012 and 2013. This is a particularly advantageous deduction because it’s an above-the-line deduction on Schedule A, which means you don’t have to itemize to take it, and it reduces your overall adjusted gross income (AGI).
One other important fix in that tax bill was the removal of the 60-month limit on deducting the interest on student loans. That’s still in effect.
One caveat to keep in mind is that many provisions of the tax code have income caps, phase-outs and other wrinkles that may affect your actual tax liability. Be sure to work with a tax adviser 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.
Here are three situations that educators typically face when preparing their taxes:
1. Income from outside work, such as a summer job or tutoring
If there’s no additional withholding on this outside work, 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’ve 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 to make quarterly payments of estimated tax on the additional income.
The outside income should be reported on a Schedule C, where you also can deduct any expenses associated with the outside job. You also are liable for “payroll” taxes (these are the contributions to Social Security and Medicare) on the extra income, which is calculated on a Schedule SE.
2. Other unreimbursed employment expenses
If your expenses on classroom supplies exceed $250, you could possibly deduct them as unreimbursed employment expenses, which are defined as expenses that help you conduct your job even if they aren’t required. However, these deductions are subject to the 2% limit on itemized deductions, which means you can deduct only the amount that exceeds 2% of your AGI.
If your AGI is $50,000, for instance, you could deduct only the expenses that exceed $1,000, even if you’re already itemizing deductions for mortgage interest or other reasons.
The same applies for expenses such as dues for unions and professional associations or subscriptions to publications.
The rules for deducting for a home office are fairly strict (as well as for equipment such as computers). The home office space must be used exclusively for work purposes, which is a tough criterion to legitimately meet.
3. Continuing education
If you take courses that you pay for yourself, whether or not they’re required for certification, there are a couple of possibilities for deducting that expense. Last year’s tax bill renewed the deduction for tuition and fees for college education through 2013. You can 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 is the Lifetime Learning Credit for 20% of education expenses up to $2,000. This is a credit, so it’s taken off your tax liability dollar for dollar. However, it’s nonrefundable, which means you must have some tax liability for it to count against. You can take only one of these options—not both.
This article was published in NEAchieve!, our monthly e-newsletter. Sign up to receive helpful tips and information delivered to your email inbox.
FROM H&R BLOCK
Now through March 31, NEA members can receive a discount on tax preparation services and products from H&R Block.
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