The Educator Expense Deduction – Things to Consider

As an educator, you are no doubt aware that you can claim the money you spend on classroom supplies as a deduction on your taxes. On the surface, it may seem quite simple–you buy the stuff throughout the year and, at tax time, and you claim that amount when it’s time to file.

Unfortunately, there are some limitations to the deductions you can take and, if you’re not aware of what those are, they can come back to haunt you later. Before you go shopping for any more supplies, here are some things you should know about the Educator Expense Deduction.

Who Qualifies for the Deduction?

You will only qualify for the deduction for that tax year if:

·  You are a teacher, instructor, teacher aide, counselor or principal in grades K-12, and

·  You accrue at least 900 hours during the school year.

If you are full-time you should have no trouble qualifying. However, if you are a substitute teacher, or part-time, you should double-check your hours before you try to apply the deduction.

What Expenses Qualify?

The IRS allows you to deduct ordinary and necessary expenses which include:

·  Books

·  Supplies

·  Equipment, including computer equipment, services, and software, and

·  Supplementary classroom materials.

You cannot deduct for home-schooling or for non-athletic supplies in physical education classes. This means that the notebooks and pencils you supply for scorekeeping in your basketball class might not qualify.

Additionally, if you provide snacks for students who might not otherwise have food during the school day, that also might not qualify. If you are unsure as to whether an item counts as a deduction, you can consult the school administration, your accountant, or tax professionals like the people at Authority Tax Service.

How Much Can You Deduct?

Here’s where things get sticky. Although you are allowed to take deductions, you are not allowed to deduct everything. In fact, for 2013, you are only allowed to deduct $250. This means that if you spend $500 on an iPad for the classroom, and then another $100 on pencils, notebooks, paper and binders, you’ll only be able to recoup less than half of what you spent.

However, if you and your spouse are both educators, and you are filing jointly, you can each deduct up $500. Which means you could recoup most of $600 you spent, so long as your spouse does not have his own education deductions.

Deduction Reductions

While most educators are allowed a maximum of $250, there are some situations that can actually reduce your educator expense reduction, or render you completely ineligible:

  • If you have received any nontaxable interest on U.S.      series EE and I savings bonds,
  • If you have received any nontaxable qualified state      tuition program earnings,
  • If you have received any nontaxable earnings from      Coverdell education savings accounts, and
  • If you have received any reimbursements for expenses      that were not reported to you on your Form W-2, box 1.

Applying the deduction when any of the above applies could result in your tax return garnering closer scrutiny from the IRS. Professional tax help like Authority Tax Service can highlight these potential pitfalls, as well as other things that can trip you up.

Alternatives to the Educator Expense Deduction

If you don’t qualify for the educator deduction, or if you have more than $250 in qualified expenses, you may be able to deduct them as an unreimbursed employee expense.  However, because this is considered a miscellaneous itemized deduction, you can only use it if the expenses exceed two percent of your adjusted gross income.

This means that if you have an adjusted gross income of $50,000, your expenses must exceed $1,000 to qualify.

For example, if you spent $500 on a mini iPad, $100 on pencils and other stationery, and $1,000 on miscellaneous expenses, you will have a total of $1,600 in expenses. If you deduct $250 as an educator expense, that leaves $1,350, but can only deduct $350 – the amount over $1,000. Or you can deduct the full $600 in education expenses as a miscellaneous expense, but only if you have not claimed any of it as an educator expense deduction.

As you can see, the educator expense deduction is not as simple as it appears on the surface. Additionally, tax codes change each year including the limits and qualifications for this deduction. This is why you should think carefully, or consult a professional, before applying this deduction to your taxes.

Can’t Afford These Luxury Items? Don’t Buy Them!

While borrowing money to purchase a home, get an education or buy a new automobile are (relatively) smart financial decisions, there are a number of items that a person should never borrow money in order to purchase. While the urgency to do so is definitely there, the fact is that saving money to pay for these purchases rather than borrowing for them is a much more intelligent financial decision and will lead to many fewer headaches in the future.

For example, borrowing to buy a boat might seem like a great idea. There’s no arguing that spending time on the water with friends and family is a lot of fun, very relaxing and quite enjoyable. The problem however is that it’s not only the cost of the boat that is significant but also the cost of insuring it, storing it, registering it and launching it every single time.

The same can be said for an ATV, a dirtbike and other “big boy toys”. While waiting patiently while you save enough money to purchase an ATV or dirtbike might be difficult, purchasing one with cash will save a lot of money in the long run and is amazingly much more enjoyable. Besides that, a $5000 (or more) purchase can have a huge effect on your finances.

Although it certainly seems to be trendy as of late, spending an inordinate amount of money on an extravagant wedding simply doesn’t makes sense. Think about it just for a moment; is it really a good idea to start off your life together deeply in debt? While that one “special” day might seem like a good idea now, 20 years from now the extra money you have in savings or in a retirement account will seem like a much better idea. Yes, your wedding day is a special day but do your best to find ways to lower the cost so that it doesn’t end up being a day you look back on with regret due to financial difficulties.

Speaking of weddings, borrowing to purchase an engagement ring is, no offense, a terrible idea. Love, simply put, should not have a price tag, and if the girl you intend to marry will only say “yes” if you spend $10,000 on a shiny rock, it might be time to look for another girlfriend.

Borrowing to go on vacation is almost as silly as the last two purchases. Yes, spending time with your family and loved ones is important, but if it puts you into the poor house or causes you financial difficulty for years to come it’s simply not worth it. Borrowing and waiting make much more sense, especially if you consider that you will actually have more money if you save for your trip, and future trips, if you don’t have to pay for interest fees on the loans you took out for this one.

Lastly there are furniture and appliances. Today it’s easy to find a store that will finance everything from big-screen TVs to sofas, washers and practically anything else. Of all of these items, maybe the only two worth borrowing for are a washer and dryer because of the time and money they will save you on going to the laundromat.

Is it super easy to make these decisions? No, because we humans tend to want “instant gratification”. Financially however, borrowing on these six items simply doesn’t make sense, will cost you much more in the long run and could ruin you financially. Practice patience and be a diligent saver and you should be able to purchase these things with cash and put a lot less stress on your finances.

Quick Jobs When you Need Money

We have all been there, cashless and needing to make a buck quickly. There are numerous ways to go about making a quick buck, including some that can easily turn into a career for the independent minded.

When you are in a bind and need money now there are no such things as a free lunch, each one of these tasks requires some skill and dedication. If you have both, it is possible to make a quick bit of cash.

Freelance Writing

Someone has to write those posts you read online. Companies and independent sites are constantly vying for readership, and that requires fresh content from a variety of different authors. Apply to be a guest blogger, numerous sites pay. In addition, freelance sites offer ‘gigs’ that pairs clients with writers. These short jobs pay quickly, and help you build a good reputation within the community.

Run Errands

People are busy, often too busy to remember to do basic tasks like drop off the dry cleaning or pick up packages from the post office. Numerous freelance sites can put you in touch with those looking for a quick bit of help, and the pay if often immediate (in the form of good folding cash.)

This is one of the most fast paced ways to make a quick buck, since your timing directly corresponds to how successful you are. Keep an eye on traffic, and utilize technology heavily in order to help you get from place to place as quickly as possible.

Street Performance

If you have a talent, use it to bring in some cash in the form of tips. Go to the local art district, and perform for the general public. If you are any good, people will leave you tips. If you are great, you will make enough to make it your day job.

Making money through the use of your talent has been the mainstay for those looking for a quick buck since the dawn of time. It is how most businesses start – a single person wishing to offer a particular product or service to the general community. As you go about making some money, think about how you can upsize your little operation.

With the right plan, you can take what made you fifty dollars today and turn it into something that can bring you a grand tomorrow. All it takes is dedication, talent, and an eye for detail.

How an Installment Loan Affects Your Credit Score

Understanding how an installment loan affects your credit score can be a bit tricky. These types of loans are far different than other unsecured debt which affects your credit. Installment loans are relatively stable types of debt that have a fixed payment schedule over a set period of time. So, where your credit card balance may fluctuate, and directly impact the length of time that you will be paying on that card, an installment loan has a very clear ending as long as payments are made responsibly. Excellent examples of installment loans are mortgages and automobile loans.

How Installment Loans Differ from other Debt

Installment loans certainly affect your credit, and if you make your payments in a timely manner, you will see a gradual, steady improvement in your score. However, the improvement isn’t profound initially, even if you pay off a significant balance early. Why? Well, an installment loan is generally tied to collateral, which is important to your life. For instance, with a home mortgage if you quit making your payments, your home – the loan’s collateral – will eventually go through foreclosure. If you neglect to make your car payments, your car will eventually be repossessed. Obviously, most people do all that they can to keep these terrible events from happening.

However, when dealing with other kinds of debt, such as credit card payments, a borrower shows their true meddle. You see, if you get behind on a credit card, you may accrue late fees and lower credit ratings, but it isn’t likely that you’ll lose anything immediate and significant in your life. As a result, the first bills left unpaid are these unsecured debts.

Risk Predictors

Because of the inherit differences between installment loans and other kinds of debt, they impact your credit score differently. Both typically are documented on your credit report, as well as how well you make your payments. However, because credit card debt carries fewer immediate consequences if you fail to pay responsibly, they are better risk predictors. The thought process is that if you pay these kinds of debt the way that you should, you are a pretty good lending risk to take.

While installment loans do affect your credit score, you won’t see as much quick progress with these types of debt as with paying other unsecured debt responsibly. However, gradual improvement will be seen over time. Certainly, if you pay your installment loans in a timely manner, they won’t have a negative impact on your score.