My kids are still trying their best to soak up the last few days of summer. Lucky for them, school won’t start until after Labor Day. Which means that they have another 20 days left, not, mind you, that anyone is counting. In other towns and cities across the country, some students are already heading back now. It seemed fitting, then, to post a few back to school tax tips for parents. Follows are nine tips that parents might want to keep in mind while toasting champagne glasses preparing for back to school:
1. School uniforms are not deductible, no matter how ugly they are. The IRS does not allow deductions for school uniforms, even if required, for public or private schools.
2. The cost of private school is not deductible. 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 (see #3 immediately below).
3. The cost of private kindergarten — and some upper grades for students up to the age of 13 — may be deductible. Okay, I know I just said that the cost of private school is not deductible. And that’s generally true for tuition costs. However, if you can separate the educational costs of your program from any child care component, you may be able to deduct the child care piece. Clearly this is easier for younger children since many programs are already separated out for you (half day kindergarten, for example, is often supplemented by a child care program in the afternoons).
4. Expenses for before- or after-school care of a child in kindergarten or a higher grade may be deductible so long as the costs qualify. Generally, qualifying costs for child care are limited to the care for your own children under the age of 13, qualifying as your dependents, for care while you work or while you are looking for work. Some cost limitations and other restrictions may apply.
5. You must subtract the cost of goods received when you contribute to band and sports fundraisers. Yes, I’m talking about those summer sausages and scented candles. Inevitably you feel guilted into buying stuff and then you feel guilted into buying more stuff cause you just can’t bring yourself to ask your friends to help out anymore. Before you know it, you’re stuck with a fridge full of frozen jalapeno pretzels and little to no tax deduction since the IRS requires you subtract the value of anything you receive in return for a charitable donation. Better solution: just write a check directly to the school. Your freezer stays empty, the school gets to keep the entire amount and you take the full donation.Unless, of course, you need more scented candles.
6. You may not deduct moving expenses for heading to college. I get asked this question quite a bit but the answer is still no, year after year. The IRS doesn’t consider going to school a job (and psst, neither does your dad).
7. The earnings in 529 plans are not taxable for federal purposes. A 529 plan is an education savings plan which takes its name from section 529 of the Internal Revenue Code. Investments in these plans grow tax-free and withdrawals are never federally taxable so long as you use them for eligible college expenses, which includes most costs associated with college such as tuition and room and board. The plans vary from state to state and there are entire web sites and publications devoted to them. If you have specific questions about a 529 plan, check with your financial advisor.
8. You can use certain tax-deferred accounts to pay for qualified education expenses for elementary, high school and college expenses. If you invest in an Educational Savings Account, your money grows tax-deferred. Withdrawals are federal income tax free so long as the money is used for “qualified education expenses” including books, fees, computers and even uniforms (see #1 above). You can contribute up to $2,000 per year to an ESA per beneficiary so long as you qualify.
9. Student loan interest is generally deductible (just the interest, not the principal) on your tax return as an above the line deduction — this means that you don’t have to itemize in order to claim the deduction. Even better: the IRS allows you to take the deduction even if your parents made the payments during the year, so long as your parents are not obligated to make the payments. Income limits and other restrictions may apply.
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