Back to School Tax Tips & Tax Deductions

August 26, 2013
Back to school tax deductions

Every parent knows that sending a child off for the first day of school is expensive. Most of the costs aren’t tax deductible — but you may be surprised about some that can be deducted on your tax returns.

About two-thirds of the public schools in the U.S. are already open, with the rest opening after Labor Day. For many parents, it’s a time to get things “back to normal” after the disruption of a summer spent juggling their children’s vacation activities and their normal workload.  One thing that’s certain, in most households, it’s a time to take a close look at spending.

One of the most common questions that the tax advisers at 1-800Accountant get this time of year is whether or not school-related expenses are tax deductible.  Here’s a run-down of costs that aren’t tax deductible, along with some that may be deductible depending on your family’s circumstances.

Expenses that are NOT Tax Deductible

  • School uniforms. The IRS does not allow deductions for school uniforms, even if required, for public or private schools.
  • Private school tuition. This includes both traditional private and parochial schools though exceptions apply in some circumstances such as for special needs children and when it serves as child care.
  • Moving expenses for attending college. The IRS doesn’t consider going to school a job, and there is no provision in the tax code to deduct the cost of moving a college student to another city/state to attend university.
  • School supplies & equipment. There is no deduction, and no depreciation allowance, for school supplies or equipment such as computers purchased for educational purposes. If you run a small or home-based business, and purchase tax deductible supplies for your business (printers, paper, pens, etc.), don’t yield to the temptation to stock your children’s backpack with supplies you bought for your business as a way to deduct the costs.

Expenses that MAY be Tax Deductible 

  • Before & after school care and some private kindergarten & pre-school costs.  While the cost of private schools are not deductible, the cost of child care is deductible. So if you can separate out the child care component from the tuition cost, you can deduct the child care portion. The tax deduction for child-care stops when a child reaches the age of 13, and doesn’t include after school programs devoted to academics, sports or the arts – just basic child care. Note that the child enrolled in the child-care program must qualify as your dependent, you must be working or looking for work, and there may be some cost limitations and restrictions.
  • Donations to band and sports fundraisers, and some private school fundraisers that benefit qualifying scholarship or building funds.  You must subtract the cost of goods received when you contribute to school or sports fundraisers, but if you simply write a check instead of buying something, you can take the full deduction.
  • Student loan interest is generally deductible. Just the interest — not the principal — on student loans can be deducted on your tax return as an above the line deduction.  This means that you don’t have to itemize deductions in order to claim it.

Other Tax Benefits for Education

  • Earnings in a 529 savings plan grow tax-free. A 529 plan is an education savings plan which takes its name from section 529 of the IRS Code.  Investments in these plans grow tax-free, and withdrawals are never federally taxable so long as you use them for eligible college expenses. Section 529 defines eligible expenses as most costs associated with college such as tuition, fees, and room and board. The plans vary from state to state and you should talk with your financial adviser about the rules in your home state before setting one up or contributing to one.
  • Tax-deferred accounts can be used to pay education expenses. Certain kinds of tax-deferred accounts, such as an educational savings account (ESA) or 529 savings plan, can be used to pay for qualified education expenses for elementary, high school, and college expenses including books, fees, computers and even required uniforms. You can contribute up to $2,000 per year to an ESA per beneficiary so long as the beneficiary is under 22 years of age and qualifies as your dependent.
  • Special educational costs are tax deductible.  Laura Saunders of the Wall Street Journal says that over six million children in the U.S. qualify as special needs students, and that the costs of special educational services they required may be covered by “hidden” tax deductions.  These deductions can cover educational expenses and adaptive equipment.  Check out the Journal article, and talk to your financial adviser about what is covered.
Photo credit: An elementary school student heads off for the first day of classes. Photo by Deb McAlister-Holland, ©2011. All rights reserved. Used with permission.
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