As educators start the new school year, the IRS is reminding schoolteachers that the maximum deduction they can claim for classroom expenses remains at $300 for 2024.  The maximum deduction is adjusted for inflation each year, but the $300 cap is unchanged from 2023.

The educational expense deduction allows educators to offset the cost of supplies, materials and other classroom essentials, providing some financial relief for those who spend their own money to improve their students’ learning experience. 

Who qualifies for educator expense deductions?

This deduction is available for teachers, instructors, counselors, principals and aides who work at least 900 hours during a school year in a school providing students with an elementary or secondary education. Educators filing jointly can claim up to $600 if both spouses are eligible, but each individual spouse can claim no more than $300 in expenses. Educators can claim this deduction even if they take the standard deduction, and both public and private school educators qualify. 

What’s deductible?

Educators can claim deductions for out-of-pocket expenses on classroom items like books, supplies, equipment (including computers and software) and COVID-19 safety measures such as masks, disinfectants and air purifiers. They may also deduct costs for professional development courses relevant to their teaching. However, educators could see a larger take benefit if they take advantage of other educational tax benefits like the lifetime learning credit for those courses (refer to Publication 970, Tax Benefits for Education, Chapter 3). 

Expenses for homeschooling or nonathletic supplies for health or physical education are not eligible for the deduction. The IRS recommends educators maintain detailed records, such as receipts and canceled checks, to substantiate their deductions. 

Rules apply to unfiled 2023 returns

For educators who are still in the process of completing their 2023 tax returns because they have been granted an extension related to a federally declared disaster or for other reasons, the rules for claiming deduction are the same for the 2023 and 2024 tax years. The IRS recommends that taxpayers submit their return before their extended date to help avert processing delays.  

Taxpayers often want to expense everything immediately, but as tax preparers, we need to know when to say “no.”

Proper capitalization and depreciation deductions can significantly impact a business’s taxable income, leading to optimized tax savings and better financial management.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Would a new office desk purchased for $270.00 at an auction be capitalized or expensed?

A: You could do either. You can elect to use the de minimis safe harbor election under Reg. §1.263(a)-1(f) to treat assets as supplies if they cost under $2,500 for businesses without applicable financial statements.

Q: If a company won’t have sufficient business income to take the §179 expense deduction, should they take some §179 to get to $0 income, then use bonus depreciation for the rest?

A: Yes, that’s an excellent strategy. Section 179 is used first, followed by bonus depreciation for the balance, and finally, MACRS for the remaining portion not immediately expensed.

Q: Can we take the §179 expense deduction on business vehicles over 6,000 GVWR (deduct some or full cost of the vehicle if 100% business use)?

A: Yes, but it depends on the vehicle. Most SUVs are limited to the annual deduction amount, currently $30,500 (2024). Check Publication 946 for more details.

Q: If a taxpayer claims §179 for an asset, and business use drops below 50%, is there recapture?

A: Yes, a portion of the §179 expense deduction is recaptured as ordinary income in any tax year of the asset’s recovery period when business use fails to exceed 50% (§179(d)(10); Reg. §1.179-1(e)).

To learn more about capitalizing fixed assets and deducting depreciation, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Question: Albert owns a small business and has two employees, Tim and Sam, who only have Individual Taxpayer Identification Numbers (ITIN) but no Social Security number (SSN). Tim and Sam have been living and working in the U.S. and are treated as U.S. residents for tax purposes. Are they subject to FICA taxes?

Answer: If Tim and Sam are U.S. residents, they are subject to FICA (Social Security and Medicare tax) They should also have SSNs if they are legally present in the U.S. If they are unlawfully authorized in the U.S., even with the ITIN, Albert should not hire them. He should also not hire anyone who does not have an SSN.

An ITIN is issued only for tax purposes but not for identification intent or immigration status. If taxpayers are eligible to obtain an SSN, the IRS will not issue them an ITIN unless they can document that the Social Security Administration denied their request for an SSN.

Technically, ITIN taxpayers should not be issued a Form W-2 and pay FICA taxes. Only those taxpayers with SSNs should receive Form W-2 and pay FICA taxes. If Tim and Sam are U.S. residents, they should have an SSN and withheld Social Security and Medicare taxes. They should not need an ITIN. Albert is advised to be cautious about their legal status and reconsider their employment.

By law, non-student U.S. citizens, lawful permanent residents and U.S. resident aliens are subject to FICA taxes on salary and wages earned as an employee. Legally, employers should not hire someone who does not have an SSN, and they should not have someone acting as an employee but being treated as a Form 1099 independent contractor either.

According to the Social Security Administration, SSNs are used to report a person’s wages to the government and to determine that person’s eligibility for Social Security benefits. Taxpayers need an SSN to work, collect Social Security benefits and receive other government services. For taxpayers have ITINs but no SSNs, they will not likely receive Socials Security benefits until they obtain their SSNs.