Shhhhhh! Do you hear it? The squeal of air brakes as the bus pulls to a stop in your neighborhood … the moans of children begging for ten more minutes of sleep … the happy sighs of parents who have been looking forward to this day since the middle of June. Yes, summer’s over and it’s time to head back to school! In honor of this happy occasion, let’s look at how the Tax Cuts and Jobs Act (TCJA) treated some education issues.
First, teachers will be happy to learn the Educator Expense deduction survived the tax law changes. It allows K-12 educators to deduct up to $250 for unreimbursed classroom supply purchases and/or professional development expenses. Almost all teachers spend at least $250 of their own money on their classrooms, so educators need to continue saving those receipts.
As the year gets underway, you’ll undoubtedly see teachers requesting donations through DonorsChoose. This web-based program allows educators to request funding for specific projects; DonorsChoose staff has procedures in place to ensure funds are used properly. Donations made through DonorsChoose qualify as a charitable gift deduction for taxpayers who itemize.
If you’re a parent, you’ll probably be asked to join the Parent-Teacher Organization and perhaps even an athletic or arts booster group. If the organization has filed for non-profit status (granted by the state) and tax-exempt status (must be granted by both the state and federal government), your membership dues are tax-deductible as long as nothing of material value was received in return. However, if you purchase items from a fund-raiser, there is no tax deduction since you received something for your money. Donations made to the organization without anything being received in return can be deducted by taxpayers who choose to itemize.
What if your children (or you) are enrolled in college? The American Opportunity Credit, available for up to four years of undergraduate study and worth up to $2500, was not changed by the TCJA. The Lifetime Learning Credit, available for tuition at eligible post-secondary institutions and worth up to $2000, survived elimination attempts and also remains unchanged. However, as has been the case for several years, the Tuition and Fees deduction expired at the end of the year; Congress has passed a series of extenders for this deduction in the past but has yet to do so for 2018. Finally, taxpayers used to have the option to deduct unreimbursed job education expenses on Schedule A. However, the TCJA eliminated Miscellaneous Expenses from Schedule A, so this choice no longer exists. Navigating the various education credits and deductions can be complex and is dependent upon each taxpayer’s specific situation, so seek advice from your tax professional to make sure you are maximizing your tax situation.
If you are paying off college loans, you’ll be happy to know the Student Loan Interest Deduction was not changed by the TCJA. Up to $2500 of interest may continue to be deducted, subject to income limits.
Finally, if your children attend private school, you’ll like the recent changes to 529 Plans. This plan has traditionally been used to grow money tax-free to use for college costs. It is unique in being able to be used for computer expenses related to education. The TCJA now allows tax-free distributions of up to $10,000 per year for K-12 tuition. A less-popular option, the Coverdell Education Savings Account, has always been a tax-advantaged way to pay for private school tuition. Coverdell ESAs can also be used for books, supplies, tutoring, and other services that are not allowable expenses for 529s. As with other tax issues, you should speak with a tax professional to understand all the rules if you’re trying to decide between 529s and Coverdells.
If anyone in your family goes to school, there is probably a tax issue to be considered. Call us if you need more information on anything discussed. We hope this is a great school year for all students and teachers!