Tax Extender: Educator Expense Deduction Set to Expire

Back to school was a bittersweet time, when students and teachers alike said goodbye to the lazy days of summer and embarked on the exciting journey of a new school year. It was an expensive transition, to be sure, with new clothes and back-to-school supplies. Although students and their parents don’t get a tax deduction for outlays for supplies in grades K-12, teachers qualify for the Educator Expense Deduction, which is set to expire in a few weeks! Here’s how you can get your deduction.

Who qualifies? If you are a teacher, instructor, counselor, principal or aide for grades K-12, you will qualify if you work at least 900 hours during the school year.

What expenses qualify? You can claim up to $250 of expenses for classroom supplies, materials, books, computer equipment, software, other equipment, and supplementary materials that you pay from your own pocket, as long as you didn’t receive reimbursement. Here’s a little fine print: If you teach courses in health and physical education, your expenses for those courses must be related to athletics.

Do I have to itemize my tax deductions? That’s the best part – you can take the Educator Expense Deduction even if you claim the standard deduction and even if you file the short form. TurboTax will easily guide you through an interview and put the tax deduction on the right form.

My spouse is a teacher – can he claim the tax deduction as well? More good news: you can each claim the tax deduction for a combined total of $500, even if you file a joint return. Of course, you can’t each claim a deduction for the same costs, so be sure to split the purchases between you for maximum tax savings.

What’s the catch? For most people, there is no catch, but certain educators with unusual situations may find their deductions limited. That’s because the expenses have to exceed any interest on US savings bonds that you excluded from income because they were used to pay education expenses, and any tax-free distributions from a 529 plan or other tuition program that you excluded from income, including any tax-free withdrawals from your Coverdell Education Savings Account.  See, I told you that those situations were unusual.

Congress decided a few years ago to give teachers a tax break temporarily, but each time the Educator Expense Deduction is set to expire it has been extended. It is set to expire again at the end of 2011, so don’t pass up this limited-time opportunity. There are no guarantees that the deduction will be around for future years, so take advantage of the tax break this year and buy those qualifying supplies before year end.