With back-to-school time right around the corner, many parents are preparing for various school-related expenses. Some school-related expenses can qualify for various tax breaks, but the rules governing them can be confusing. For example, many parents will send their children to after-school programs or obtain tutoring services for their children -- but only one of these expenses is deductible. With that in mind, here are some school-related expenses you may be able to write off, along with a few you can't.
The child-care tax credit
The IRS offers a credit, known as the Child and Dependent Care Tax Credit, which is intended to reduce the burden of child-care expenses from working parents. The credit is worth between 20% and 35% (depending on income) of the first $3,000 in qualifying expenses for one child, or up to $6,000 in expenses for more than one child.
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In general, the expenses you claim must be for a child under 13 years old, and you can claim a partial-year deduction for the year in which the child turns 13. And the expenses must be paid while you're working, looking for work, or attending school full time.
What school-related expenses count toward the credit and which ones are excluded?
There are a few school-related expenses that meet the IRS's definition of child care. For example, if you send your child who is less than 13 years old to an after-school program because you work a full day, it can be considered child care. But if the after-school activity is considered a tutoring program, the expenses are not eligible.
According to Dave DuVal, vice president of TaxAudit.com, it isn't always so obvious. "There are some situations where it can be difficult to determine whether or not an expense qualifies for the credit," said DuVal. In other words, if you send your child to an after-school program where there are tutors available if they need them, it could potentially still qualify as child care as long as it meets the other requirements. If you have a situation that isn't completely clear, be sure to consult a professional before deciding to claim it on your taxes.
What about if you pay tuition for your children to attend school? That's "child care," right?
Not exactly. School tuition at the kindergarten level and above is not eligible for the Child and Dependent Care Credit, and it isn't deductible under any other provision. But if you pay tuition for preschool or nursery school, it qualifies as "care," hence the expenses are eligible.
Raffles, fundraisers, and donations -- what's deductible?
School uniforms or sports equipment you purchase directly for your child are not deductible, but if you make a donation to the school or sports program to help fund the purchase of uniforms for everyone, it could qualify as a charitable donation.
Many schools have fundraisers and raffles throughout the year, and the rules can be tricky. If you donate money directly to the school or school-related program without receiving anything in return, it qualifies. And if you donate supplies, such as ingredients for a bake sale, the cost of those supplies qualify for a deduction.
On the other hand, if you receive something of value in exchange for your donation (such as a dinner, sports tickets, etc.), you can only deduct the difference between what you paid and what you receive. So, if you pay $25 to attend a fundraising dinner hosted by your son's football team, and the dinner would reasonably cost $10 if purchased elsewhere, you can deduct the $15 difference as a charitable contribution.
Finally, some fundraiser expenses don't qualify at all. Any raffle-style fundraiser is technically considered a form of gambling and not a donation -- i.e., you could receive something equal to or greater than the cost of the raffle ticket.
A recap
To sum it up, here's a quick list of what expenses qualify for a credit or deduction and what never qualifies:
| Usually qualifies for a tax break... | Rarely, if ever, qualifies... |
|---|---|
| After-school programs | Tutoring services |
| Preschool or nursery school tuition | Tuition at kindergarten level or above |
| Donations made directly to the school for benefit of all students | School uniforms for your child |
| Donations made to a school's sports program | Sports uniforms for your child |
| Cost of attending fundraisers, less the value of goods received | Raffle tickets at a fundraiser |
A little strategy can go a long way
Most Americans look at tax planning as something they do for a few weeks before sending their tax return to the IRS in the spring. But if you make tax planning a year-round process, it could not only make your life easier when filling out your return but could potentially put more money in your pocket.
So, when you make a batch of cookies for your child's school bake sale, donate some books to their library, or attend an annual fundraiser, make sure you save your documentation and take notice of what deductions or credits you might be eligible for. You might be surprised at how much a series of seemingly small expenses could add up to throughout a school year.
