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Back-to-School Expenses: What’s Deductible? What’s Not?

As kids go back to school, and you write checks for everything from tuition to uniforms, books, and bake sales, you may wonder if your expenses are tax deductible. Here is a list of the most common questionable areas and their tax deductibility:

K-12 Public and Private Schools

  • Tuition and uniforms aren’t deductible.
  • Special needs expenses, including education, may be deductible as a medical expense that qualifies as treatment. (Medical expenses are deductible only above a threshold of 10% of adjusted gross income.

Before and after school care

  • Child care costs (for up to age 13) qualify for a tax credit. For private schools, the cost must be separated from the tuition.

Fundraisers

  • The deductible portion of a purchase made for fundraising is the amount in excess of the value of any goods and/or services received. So, if you bid $750 on a trip valued at $500, you can deduct $250.

College

  • Expenses related to moving to a college campus in another city are not deductible.
  • The American Opportunity Credit allows for tax credits with certain restrictions for tuition and fees for higher education for eligible students. Qualified education expenses include tuition and fees, room and board, books and supplies such as computers, and necessary expenses such as transportation.
  • Medical expense deductions may also include college certificates for students with learning disabilities.
  • Earnings in 529 plans aren’t taxable as long as they’re used for eligible expenses. The use of the funds isn’t deductible.
  • Lifetime Learning Credits apply to higher education expenses with up to a $2,000 tax credit per return.
  • Interest on student loans is deductible up to $2,500 per year, even if the taxpayer doesn’t itemize on Form 1040. However, the amount of the interest deduction reduces based on the taxpayer’s modified adjusted gross income.

Work-related Education

  • You can deduct expenses for education that is needed to meet the minimum requirements of your trade or business.

For more information about deducting educational expenses, or setting up a tax-deferred educational account, please contact Jeff Bergman, CPA, Tax Manager.