Tax Deductions and Homeschooling
Following the coronavirus (Covid-19) pandemic, parents have been asking this question: Is homeschooling an ideal public school option? However, you need to consider many factors before you settle on a homeschooling option. For example, do you need a tutor? Do you have time to school your kids? Do you have the emotional/psychological ability to commit to a daily homeschooling course?
In this article, we will not focus on that but on tax deductions and homeschooling. So, we’ll explore the answer to the question: Can you claim tax deductions when homeschooling?
Homeschooling families cannot claim federal education credits or teacher tax deductions in their 1040 tax return form. However, you can claim these tax deductions when homeschooling:
- Child Tax Credit
The child tax credit allows you to claim deductions in your tax returns for each dependent child in your house. The new tax code for child tax credit offers a claim of $2,000 per child. This means you will keep more of your money to use on your children.
- State Tax Credits
In the entire United States, only Minnesota, Louisiana, Indiana, and Illinois allow homeschooling families to claim state tax credit deductions on their income taxes.
Although the state tax credits vary with each state, it plays a major role in terms of expenses. For example, you can use the credit for expenses like workbooks, grade books, curriculum rental fees, and tuition.
The number of states providing state tax credits for those homeschooling might change in future following the Covid-19 pandemic outbreak.
Here are the tax breaks for homeschoolers in the above states:
- Minnesota: This state offers K-12 education deduction and credit. The tax deduction is considered as an expense deduction. If your child is in grades K-6, you can claim a deduction of up to $1,625 for each qualified child. For qualified children in grades 7-12, you can claim a deduction of $2,500 for each child. On the contrary, education credit lowers your amount of taxes owed. However, the credit has a limit of 75% of your total expenses, and it has an income cap.
- Louisiana: This state has a tax deduction on school expenses. The deduction is worth up to $ 5,000, and it has a limit of 50% of your real costs per child.
- Illinois: It offers education expense credit. This credit is 25% of your expenses and should be between $250-$750.
- Indiana: Indiana has a $ 1000 education deduction, which you might qualify to claim when you homeschool children of elementary or high school age.
- Federal Tax Credits
There are no tax credits or deductions for homeschooling families. However, you can take advantage of the available tax breaks. Some of these tax credits allow the deduction of some special education costs—for example, the cost of tutors for specialized topics.
The other tax break is for charitable contributions. You can claim deductions for any cash donation or value of items donated.
There are some Scholarship Tuition Organizations(STOs) that offer scholarships to homeschoolers. You can donate to such organizations with the aim of helping students who want financial aid. Remember to deduct your contributions when filing your tax returns, but make sure you itemize the deductions.
Nevertheless, this is not an excellent financial plan because donations are not a guarantee to scholarship, but a means of supporting homeschooling to receive a tax write-off.
- Tax-Deferred 529 Savings plans
This is a saving plan made to assist families save money to cater for higher education and college costs. Any money you deposit in these plans is free from federal income taxes and grows over time. Furthermore, your money is tax-free when withdrawing. You can use this money for tuition and higher education expenses.
You should consider this option if you have a plan to send your children to higher education institutions like colleges and universities.
Can you claim tax deduction if you are paid to teach homeschoolers?
In some cases, you might be homeschooling but charge to tutor kids from your neighborhood, start running a homeschool pod or provide a free class for other households. If you are running homeschooling for profit, you might be eligible to claim a tax deduction for work-related expenses. In this case, the deductions fall under Schedule C for self-employed people.
However, you should be cautious because the materials used by your children are not an expense associated with your work. This means you should only deduct expenses for materials used by other students and not your children.
There are no tax deductions or credits at the federal level for homeschooling families. However, four states offer deductions, and this might change after the Covid-19 impacts. Since homeschool parents do not receive salaries as employed teachers, they can take advantage of the above tax deductions for the expenses. You should get help regarding tax deductions and homeschooling from your tax advisor. At Ubos, our experts are always available to guide you with anything related to tax planning, tax strategies, and more. Do contact us to know more.