It’s back to school and a good time to remind teachers/educators to keep those receipts for all the “ordinary and necessary” school items that they purchased for their classrooms during 2007. In 2002, a tax law act gave such folks the ability to deduct the first $250 of these expenses “above the line” on their tax returns. Prior to 2002, these costs could be deducted only as an itemized deduction on Schedule A. Per the IRS, in tax year 2005, teachers and educators deducted just over $893 million in out-of-pocket classroom expenses. That’s a lot!
First let’s talk about who is considered a teacher/educator. You’re eligible for this special deduction if you’re:
- A kindergarten through grade 12 teacher, instructor, counselor, principal, or aide
- Who worked in a public or private school
- For 900 hours during the school year.
As you can see, college teachers and pre-kindergarten teachers don’t get to deduct their expenses above the line. Also the IRS specifically states that home school parents are not employees of the home school and therefore can’t take the deduction.
The IRS says the following are “ordinary and necessary” expenses for such educators: books, supplies, and equipment (including computers, software, and services).
Here’s an example of “ordinary and necessary” expenses. If you’re a kindergarten teacher, these supplies might be chalk, crayons, and paper if it’s not out of the ordinary for teachers like you, in your area schools, to buy these items for the classroom. A necessary item is one that is helpful and appropriate but doesn’t have to be required. The “ordinary and necessary” expenses do not include the expenses for home schooling. Also the purchase of non-athletic supplies for courses in health or physical education is not included.
These expenses must not be reimbursable. This means that if you could have gotten a reimbursement and didn’t get it, you can’t deduct the expense. There is an exception. If you were reimbursed for your educator expenses and your employer included the reimbursements in box 1 of your Form W-2, you can claim the deduction, because you are being taxed on the reimbursements. However, if you were reimbursed for your expenses and the amount does not appear in box 1 of Form W-2, you cannot claim the deduction for those expenses.
So you’ve determined that your purchases were “ordinary and necessary” and after reading the prior paragraph about reimbursements, you can still deduct the expenses. Let’s discuss the documentation that you need. You’ll keep each receipt and check that the date and amount paid are readable. If there isn’t a good description of the items, write that on the receipt along with how the items were related to your classroom.
Now let’s discuss the amount of the deduction. If you’re that kindergarten teacher and spent $550 on your classroom supplies, you can deduct $250 on the front page of the 1040. You deduct the remaining $300 on Schedule A (Itemized Deductions) under unreimbursed employee expenses. If both you and your spouse are educators and file a joint return, you can each deduct up to $250 on the front page. if one spouse spends $400 and the other spouse only spends $100, the total front page deduction is only $350 ($250 + $100). The remaining $150 will be deducted on Schedule A.
There is a downfall about the remaining amounts and Schedule A. First, you need to be filing a Schedule A to deduct the remaining amounts. And your total Schedule A unreimbursed amounts, along with other miscellaenous deductions, must be more than 2% of your AGI. Ah! Taxes are such fun! That’s why you use TurboTax to prepare your taxes. TurboTax will ask you the about your expenses and calculate the amount to go on the front page, send the remaining amount to Schedule A and run the 2% limitation.
If you’re eligible for this deduction and spent the money in 2007, be sure to take the deduction on your 2007 return. Tax year 2007 could be the last year for this deduction since it is due to expire at the end of 2007 unless Congress extends it (as it did in December 2006.)
For additional information: