'What Can I Deduct?'
Plan now for a surprise-free April 15
When it comes to teaching, the more creativity involved, the better. But the Internal Revenue Service frowns on creativity—especially when it comes to deductions for career-related expenses.
Many teachers have painstakingly calculated and claimed tax deductions—supported by shoe boxes of receipts for graduate study courses, computers, and other expenses—only to have them summarily rejected by Uncle Sam. Yet, tax lore is replete with teachers who have deducted—and successfully defended—a myriad of such expenditures. The difference, in all likelihood, is that the successful teachers understood the IRS eligibility rules before they claimed their deductions.
Those rules are complicated, and they aren't always clear-cut. For instance, some deductions ultimately are allowed—but only after an appeal in tax court. Whether or not a deduction is permitted might depend on how the teacher-taxpayer answers the following questions:
1. Should I take the standard deduction, or itemize? The standard deduction is $5,000 for a married couple and $3,000 for a single person. If your actual deductible expenses are higher than that, you should itemize.
To determine your permissible deductions, use Schedule A, which is attached to form 1040. Categories of allowable deductions include medical expenditures, state income and property taxes, mortgage and investment interest, charitable contributions, moving expenses, and—very important—miscellaneous. This catchall category is where you list your education-related and employment-related expenses.
Miscellaneous expenses include union and professional dues, tax preparation, safe deposit box rental fees, investment expenses, unreimbursed employee business expenses, and education expenses. These expenses are deductible only if they exceed 2 percent of your adjusted gross income (AGI). You may then deduct only the amount in excess of 2 percent.
Note: You are more likely to reach that 2 percent trigger if you take several courses all in one year and claim them together, along with related expenses, rather than spreading them out over time.
2. Do I qualify for education deductions? The general rule is that if a teacher is working full time she can deduct the cost of continuing-education classes as a business expense.
An unemployed person taking a class—even if he or she has general plans to return to work—will usually not qualify. However, deductions claimed by people on leave (usually for up to one year) in order to pursue education or training that maintains or improves professional skills would probably be allowed. For example, a mother who leaves teaching for a few years to raise her baby may not deduct the cost of any classes she might take during that period. A teacher who wants time out from the classroom to work toward an advanced degree, on the other hand, may claim her expenses, provided it's clear she will be returning to her previous, or a similar, post. Note that although it may mean an appeal before the tax court, the IRS can be flexible here.
3. Which education-related expenses are deductible? The cost of continuing education classes is deductible as a business expense if they maintain or improve the skills needed to stay employed, or to retain salary or status. Following this rule, a physical education instructor was allowed to deduct dues to an athletic facility, flying school costs were approved for a counselor at an aviation high school, and graduate courses in anthropology and linguistics were cleared for teachers of social studies and Spanish, respectively.
Expenses may not be claimed if they are for course work required to meet the minimum requirements in a particular trade or business. For example, a college student may not write off the costs of his education because course work toward a bachelor's degree is considered a minimum requirement for a profession. For much the same reason, teaching assistants have found it difficult to claim the cost of teacher certification courses.
The same rule applies to education leading to a career change not related in some way to teaching. Should a teacher decide to pursue a career as a lawyer, the teacher must fully shoulder the burden of getting that law degree. The same is true for other fields not related to teaching.
While the IRS and the courts are usually pretty firm about this rule, teachers seem to enjoy “most-favored profession” status (at least anecdotally), and have seen a more liberal interpretation of what is allowed. The following career-move examples have been deemed “the same general type of work” and the IRS has allowed deductions for the cost of course work needed to make the transition from:
- Elementary to secondary school teacher;
- Teacher of one discipline to another—from math to science, for instance;
- Classroom teacher to guidance counselor;
- Classroom teacher to principal;
- Parochial school teacher to public school teacher.
Examples of expenses held not to be deductible include:
- A paraprofessional obtaining a college degree to teach;
- A teacher in a special school for learning-disabled children obtaining a master's degree in social work;
- A substitute teacher taking college French courses (because the courses qualified him for other types of work, including acting as an interpreter);
- Courses that are related to the teacher's line of work but are taken along the way to earning a degree that could lead to a new career. (An example of this might be a science teacher working toward a medical degree who tries to write off the cost of an organic chemistry course in the process.)
When course work meets the criteria for deductibility, other related items—often overlooked—may be automatically deducted: expenses for books, supplies, lab fees, research and typing fees, as well as local travel to and from classes, whether by bus, train, or auto. The allowable deduction for mileage reimbursement currently is 24 cents a mile. There are also provisions for deducting education-related travel—providing it's the “right” kind of travel. Deductible travel expense is usually limited to going between work and the place where a continuing education class is being held. But commuting between home and class is never deductible. If a teacher goes home from work before going to a class, technically he or she is only permitted to claim traveling expenses for the work-to-class route. Also, don't try to claim travel expenses for traveling to a course on a non-work day—the IRS won't allow it. In one instance, a teacher who had taken a year off was given the go-ahead on deducting tuition costs for courses she had taken during her leave. But she was not permitted to write off the cost of traveling to those courses. The IRS considered the going-to-class travel to be her commuting expense.
Travel itself as an education-related write-off has been banned since the significant tax changes of January 1987. Before then, a Spanish-language teacher who wanted to maintain or improve her skills by absorbing the local culture in Guatemala, for example, could deduct the trip's cost. No more. On the other hand, a scholar of foreign literature may well be able to deduct a trip to do specific research available only in a particular locale, or to take courses offered only at a foreign (or simply away-from-home) site. Gasoline, meals, and lodging are deductible expenses for travel taken primarily to obtain business-related education. Personal activities—such as the cost of a day at Walt Disney World during a professional seminar in Orlando—are not deductible.
Remember to keep complete records. Even in the halcyon days prior to the tax-law reform, the IRS was stingy in approving deductions for travel and contested many claims in tax court.
Some other expenses commonly regarded as deductible in the past are now out-of-bounds. The foremost is computers. Recent cases, and the Internal Revenue Code itself, make it very difficult to substantiate a deduction. The machine must be required for one's job—by the employer—and be all but absolutely necessary. Personal convenience, and even employer preference, have often not been sufficient to sway the IRS. In addition, the claimant must make a distinction between personal use and business use, with deductions limited to the percentage of business use. Extensive records—when it was used, and for what—also must be kept. To add to the difficulty, the deduction would normally be spread over five years, with only a portion of the computer's cost being deducted each year. All in all, the relatively minor tax benefit isn't worth the effort.
It should also be noted that the home office deduction, iffy at best in the past, is a virtual impossibility for teachers now.
The bottom line on tax deductions for teachers is this: If you have incurred education expenses which appear to qualify for deduction, claim them. Even if they're challenged, you may win. Learning these and other tax law rules can only help come April—because while the IRS seems to look fondly on teachers, it has not yet taken to calling them up to remind them of the various advantages available.
Vol. 01, Issue 01, Pages 84-85