Tax Tip: Deductions for Students & Educators

NEW YORK (MainStreet) — So-called “above-the-line” deductions for educator expenses and tuition and school fees are back for 2010 (and 2011), thanks to the compromise Tax Act that Congress passed in mid-December which extended for two years some popular tax breaks that had expired on December 31, 2009.

Teachers, counselors, principals, and aides of students in Kindergarten through 12th grade can deduct up to $250 of unreimbursed out-of-pocket expenses for books, supplies, computer software, equipment, and other classroom materials as an “adjustment to income” on Page 1 of their 1040 tax returns. If both husband and wife are qualified educators they can each deduct up to $250.

To qualify, the educator must have worked at least 900 hours during the school year.

Most teachers spend more than $250 on supplies. They can deduct expenses in excess of that amount as “employee business expenses” if they itemize on Schedule A and their total miscellaneous deductions exceed 2% of their Adjusted Gross Income (AGI).

While most undergraduate college students get the best tax benefit by claiming the American Opportunity Credit, graduate students must choose between the Lifetime Learning Credit and the special tuition and fees Deduction.

Also available “above the line” (as an "Adjustment to Income"), the tuition and fees deduction is available for up to $4,000 in qualifying expenses for joint filers with an AGI of $130,000 or less.

That deduction comes to $2,000 for couples with an AGI between $130,001 and $160,000. For singles the AGI cutoff is $65,000 or $80.000.

Qualifying expenses include tuition and fees and required books, supplies and equipment. Pretty much every student will have these expenses for every term, so all of them should be able to take advantage of the deduction.

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