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School Tax

IRS Tax Preparer Study of Back to School Tax Issues

Now that all the kids have returned to school, this is an ideal time to review the items on a tax preparation checklist related to educating children. This is one of the areas covered on the new IRS Registered Tax Return Preparer exam. Passing that test is required of every tax preparer who is not an Enrolled Agent, CPA, or attorney.

The exam covers various aspects of personal tax returns. Having mental checklists is an easy way to prepare for answering the Registered Tax Return Preparer questions. School-related issues are a starting place for this approach.

First, remember to apply tax preparer ethics by helping taxpayers claim only school deductions authorized by the federal Tax Code. Some taxpayers will try every year to list among their Tax Deductions the cost for private school or school uniforms. These are not tax-deductible.

However, extra costs for a special needs child can qualify for tax deduction if it serves as childcare. In fact, take a tax deduction of amounts paid for after-school care – but only payment of the childcare component to the school, not tuition costs. More importantly, IRS tax preparer study teaches that the deduction of childcare costs ends when the kids become teenagers – unless they are disabled.

All those contributions to school fundraisers are tax-deductible. However, subtract the value of anything received in return for the donation because that part is not deductible. A solution exists for people who want to contribute to a fundraiser but really don’t care about having any of the stuff being sold. They should just write a check directly to the school and forgo accepting any magazines, cookies, or other goodies. In those cases, the full amount is tax-deductible.

Withdrawals from 529 plans are tax-free when used for qualified higher education expenses. The costs for tuition, fees, books, even a computer are qualified. The earnings in a 529 plan are not taxable. Contributions to these accounts are not tax-deductible. But, they also don’t incur gift tax when they are within certain limits.

After graduation and the payments begin on student loans, the interest is tax-deductible. The student doesn’t have to itemize deductions for this benefit. However, income must not exceed established thresholds.

Don’t deduct the cost of moving kids to college. This is not a “job-related” move. Likewise, transporting college graduates and their stuff back home isn’t tax-deductible.

Of course, many tax credits related to higher education costs are also addressed in RTRP exam questions along with all the other federal income tax subjects in IRS Publication 17. To assure complete confidence in passing the exam, online tax preparation courses are generally recommended.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

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