Summer is wrapping up and the back-to-school season is upon us. You know what that means: pencils, paper, post-it notes, highlighters, bottles of wine, and other necessary back to school supplies for teachers. These and many other supplies (excluding the wine) can be tax-deductible for teachers through the educator expense deduction. This article will explain what the educator expense deduction is and how you may qualify.
What is The Educator Expense Deduction?
The educator expense deduction allows eligible educators to deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of unreimbursed trade or business expenses.
What are Eligible Expenses?
Qualified expenses are amounts paid for supplies used in professional development courses:
- Computer Equipment (including related software i.e. Microsoft Office)
- Other Equipment
- Supplementary materials used in the classroom
Who are Eligible Educators?
You are considered an eligible educator if all of the following applies to you:
- You’re a Kindergarten through grade 12 teacher, instructor, counselor, principal or aide.
- You worked in this position for at least 900 hours during the school year.
- The school provides elementary or secondary education as determined under state law.
What are Some Limitations?
Qualified expenses should be reduced by:
- The interest on series EE and U.S. savings bonds that are excluded from income because they were used to pay qualified higher education expenses.
- Any distribution from a qualified state tuition program that you exclude from income.
- Any tax-free withdrawals from a Coverdell education savings account.
- Any reimbursements you receive for expenses that aren’t reported on your W-2.
In some cases, it might be more beneficial to take an educator expense as an itemized deduction subject to the 2% adjusted gross income limit. If you had qualified expenses in excess of the $250 limit and you itemized deductions, are subject to the 2% limit or exceed the 2% threshold, then you’re better off taking the itemized deduction.
Example: Tammy is a full-time 3rd grade Math teacher at a state-sponsored elementary school. Her adjusted gross income (AGI) is $70,000 and her eligible expenses total $500 for the year. Tammy’s itemized deductions exceed the standard deduction and she also has the following itemized deductions subject to the 2% floor: $300 for tax prep fees, $700 for union dues, $200 in dues to professional societies, and $200 in investment fees.
Since 2% of her AGI equals $1,400 (2% X $70,000) and her itemized deductions subject to the 2% floor also equal $1,400 ($300 tax prep fees + $700 union dues + $200 professional dues + $200 investment fees), she is better off taking the $500 itemized deduction than the $250 deduction from adjusted gross income.
Now, let’s say her itemized deductions subject to the 2% floor were only $600 before factoring in the $500 educator expenses. Tammy wouldn’t be able to take the deduction as an itemized deduction, so she’d be better off showing it as a $250 deduction to the adjusted gross income.
Calculating the applicable educator expense deduction can be complicated, but saving receipts is much easier. Make sure to keep track of the amount spent on supplies used in the classroom and leave the complicated tax issues to the professionals. If you have more questions about the educator expense deduction, consult your tax advisor.