New Break for Teachers

Teachers and professional educators get a tax break for 2002 and 2003 that should ease the pain of many out-of-pocket classroom expenses. The Job Creation and Worker Assistance Act of 2002, section 406, allows teachers and other education professionals to deduct up to $250 of unreimbursed classroom expenses.

The deduction is above the line (deductible even when the taxpayer does not itemize), so it is valuable and covers a lot of expenses.

Qualifying expenses. The new law allows an above-the-line deduction up to $250 each year for certain expenses, which must have been for

Books.

Supplies (other than nonathletic supplies for health or physical education courses).

Computer equipment (including related software and services).

Other equipment and supplementary materials used in the classroom.

The expense must be one the taxpayer otherwise can deduct as a trade or business expense (an ordinary and necessary expense paid or incurred during the tax year to carry on any trade or business) under IRC section 162. Educators qualified to take the deduction must have been kindergarten through 12th grade teachers, instructors, counselors or principals for a minimum of 900 hours in the course of a school year. (In the act “school” is defined to be any institution providing elementary or secondary education, as determined under state law.)

The deduction applies only to 2002 and 2003 tax returns. While the deduction appears to be very broad, CPAs should encourage clients to keep receipts in the event the IRS questions a deduction.

Observation. The new law does not specifically mention certain issues. For instance, although it defines categories of qualifying educators, it does not mention substitute teachers or whether it covers summer school expenses. The IRS likely will clarify any ambiguities in future guidance.

—Lesli S. Laffie, JD, LLM, a technical editor of The Tax Adviser.