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Best Tax Tips: Tax Effects of School Supplies and Courses

Written by Eva Rosenberg on September 7, 2011 in Tax  |   5 comments

This is the time of year parents are rushing around, frantically buying up supplies for their children returning to school. I remember the days of cutting up brown paper bags to make neat, clean covers for all our precious schoolbooks. Do you still do that?…

This is the time of year parents are rushing around, frantically buying up supplies for their children returning to school. I remember the days of cutting up brown paper bags to make neat, clean covers for all our precious schoolbooks. Do you still do that? Recently, we talked about the tax-free days in certain states, and how to generate some tax savings on these purchases.

Are there any other tax benefits families can use?

Supplies

For families with students in colleges, technical schools and other post-secondary schools, there are credits or deductions for the costs of certain school supplies – with restrictions:

Tuition and Fees deductions – Up to $4,000 per return, depending on your modified adjusted gross income (MAGI). In order to deduct the costs of books and supplies, unfortunately, they must be bought directly from the educational institution.

American Opportunity Credit – Up to $2,500 per eligible student, depending on MAGI, for the first four years of eligible education. This is the only education benefit where course-related books, supplies and equipment do not need to be purchased from the school to qualify.

Lifetime Learning Credit – up to $2,000 per return, depending on MAGI. Books and supplies must be bought directly from the educational institution.

For families with students in K-12, there are no credits or deductions for books. One thing I have seen parents try to do is to bury the costs in their own business expenses. This isn’t a good habit to develop. It’s a lie. IRS may not catch you right away. But once you lie about one thing, everything else on your tax return becomes suspect.

Since the tax benefits are rather limited, consider looking for used textbooks or free electronic textbooks. Reliable sites include Gutenberg.org and Bartelby.com.

Course Costs

Naturally, people know about being able to deduct the cost of some education as business expenses, or as employee business expenses. But did you know, in certain instances, you may deduct the cost of school as a medical expense?

Yes, you can. If your child has special needs, you may be able to get a doctor’s prescription and referral to special schools or courses. It could be for a learning disability, or certain behavioral problems. It could be for specific remedial courses, certain therapies (speech, visual, etc.), or even for full-time boarding school. A doctor must perform the appropriate evaluations and make a medical recommendation to qualify.

You may be able to use part of the cost towards the Child and Dependent Care Credit (Form 2441), and the rest on Schedule A, as a medical expense.

Another way to pay course costs is via gifts. Employers, friends and family members may pay the school directly for books, tuition and fees without incurring any gift taxes or generating any taxable income issues. In fact, employers might actually be able to deduct the education costs.

READ MORE: 
Wedding-related Tax Benefits
Common Mistakes the Self-Employed Make
Plan Ahead for Next Year’s Taxes with Green Tax Credits – Part 1
Plan Ahead for Next Year’s Taxes with Green Tax Credits – Part 2
How Divorce Affects Your Tax Return
Sales Tax – Are All Those Receipts Worth Saving?

Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.

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