Taxes - get the credit you deserve
By Kim Jaworski, Homeschool Resource Specialist
Did you know that most of your homeschooling expenses are deductible on your Mn Income Tax return? Save those receipts and documentation of your expenses so you can get the full benefit of the deduction at tax time!
Whether you prepare your own taxes or just sort your receipts for your tax preparer, it’s important to understand the documentation needed to prove your claims for the Education Credit or Subtraction on your Mn Income Tax forms. If someone else completes your tax forms for you (a spouse, friend or tax professional), share this information with them so that you are all on the same page, and to ensure that you get the credit (or subtraction) you deserve!!
The key to maximizing your deductions is to be organized. Keep your receipts for all related purchases, even if they aren’t currently allowed, as the rules can change from tax year to tax year. It’s helpful if you flip your receipt over at the time of purchase and make a note on the back as to what the purchase was for or how it relates to homeschooling. Keep your receipts cool and dry. They will fade easily with soy based inks and heat sensitive papers.
Documentation is vital for your claims, so here are some situations common to homeschooling that will need particular attention to the “paper trail”. It needs to be clear what the purchase price was for each item, as something may be disallowed and need to be subtracted from the total purchase.
When ordering on line or by mail, you’ll need more than your credit card statement. Keep your email confirmation if it lists each item and its price. Your packing slip, when the package arrives, may also include this information. If all else fails, copy the pages out of the catalog (or rip them out) and staple them to your proof of payment or email confirmation.
When ordering with another family, as we often do to qualify for free shipping, be sure to document individual pricing of your items. Keep your cancelled check if you paid another homeschooler for your items on a combined order. You’ll want to get a copy of the packing slip with your items circled.
When making payment as part of a co-op for classes, field trip and activity fees, transportation fees, supplies, etc, ask for a receipt or statement that lists these fees separately from each other (not just a total for the month or semester). It’s even better if it gives a break down by child enrolled.
When purchasing materials at a used book sale or from another private party, use a “petty cash receipt” type booklet to document your purchase. You’ll need to list each item and its purchase price and ask the vendor to sign the form as proof of purchase. Your cancelled check is not enough. This transaction does not require the seller to claim the income in any way. Incidental sales like the proceeds from a used book sale or garage sale are not taxable.
Now, let’s get to the “claiming” of your expenses. In Mn, we have a CREDIT and a SUBTRACTION for educational expenses.
For the CREDIT, you must meet income guidelines (subject to change from year to year), so complete your federal forms first to determine your adjusted gross income. If you qualify, you will need to complete form M1-ED and attach it to your State Income Tax Return. Amounts change, but if the credit allowed is $1000, you can claim $1333 in expenses per child, and any additional expenses can be included in the SUBTRACTION portion of your return. Your claimed expenses will be taken at 75% of actual expenses, so your credit amount will not exceed $1000 per child. Verify the amounts and percentage each year, as these figures are subject to change.
For the SUBTRACTION, there are no income limits. Every family qualifies if you have educational expenses for a qualifying child- homeschoolers and parents with children in school. There is no family maximum, but there are individual limits per child according to their grade level at the end of the tax year. There’s one limit per child grades K-6 (Yes, you can claim education costs for children who aren't yet old enough to be reported on your district's fall reporting) and another per child grades 7-12. These amounts are actual limits and not something that will be subject to a percentage reduction. You’ll also need to complete an M1M form, but it only requires your kids' names and grade level info, and then a line item total that transfers to your state form. The M1M is where you categorize all additions and subtractions to income.
What about group expenses? Many of us buy art supplies, paper, pens, markers etc that aren't for one particular student. When sorting your receipts, make a pile for each child (class fees, music lessons, etc that were for a particular student) and another pile for 'group expenses'. When you're finished, if one child is at their limit, you can use the group expenses in the other kids' piles. You don't have to split the group expenses in thirds for 3 children. You can shift them to wherever there is room in the allowable limit.
Types of Qualifying Expenses
Tuition & Fees (These expenses can only be claimed for the subtraction. The other categories listed below qualify under either the credit or subtraction): School tuition, fees for classes or instruction. Sports lessons and camps don’t qualify, but Phy Ed, music lessons, math tutoring or classes, language classes or band qualify if these are part of your normal school day.
Instructional Materials: consumables like paper, pencils, pens, erasers, markers, chalk, kits & supplies, notebooks, rulers, compass, art supplies, computer paper, and supplies needed for typical school day classes. Small maps, paperback dictionaries and thesauruses, textbooks, teacher’s editions, books for personal reading, educational magazines & subscriptions (Highlights, Which Way USA, National Geographic for Kids, Kids Discover, and the like).
Equipment: musical instruments (purchase or lease, except piano), calculators, tennis shoes (1 pair per child per year), science beakers and test tubes, dissection kits, paint brushes and supplies, model making kits and supplies.
Miscellaneous: standardized testing fees, entrance & admission fees (only for qualifying children), parking expenses, transportation fees paid to others for field trips or activities. Not expenses for food, lodging or travel in any circumstance.
Instructor Fees for Enrichment Programs: fees for enrichment classes and extracurricular classes in science, study habits, music lessons, dance lessons, voice lessons, academic tutoring, driver’s ed, drama and the like that are not part of the typical school day. Sports fees do not qualify. The expenses for books or materials for these classes or activities also do not qualify. Nor do fees paid to a sibling, parent or grandparent for tutoring or extracurricular academics.
Computer Hardware & Educational Software: purchase of a computer, printer, monitor, modem, CD drive, additional hard drives, memory upgrades, adaptive equipment for students with disabilities, and educational software. There is a $ limit per family under the credit and an additional $ amount under the subtraction (not to exceed actual expenses). You cannot claim games or software without educational value, web TV or internet service fees.
**Kim Jaworski is not a tax professional and didn’t compile this article to offer tax advice. She has been through the Mn Dept of Revenue’s review process twice and in the wake of that experience, she endeavors to make this process clearer for other homeschoolers. This article was compiled from Mn Dept of Revenue instruction booklets, website information and forms, as well as from conversations with Mn Dept of Revenue staff. If you have any questions as you complete your tax return, Kim urges you to call the Dept’s information line for clarification.**
Expenses that DO NOT qualify (and clarifications)
You cannot deduct the following expenses. Things can change from year to year, so save your receipts anyway and be sure to look at the “what has changed” section of the instructions when completing your next return. Instructions are available online or in booklet form at libraries, post offices and copy centers.
Desks, blackboards, white boards, book shelving, wall maps, or other items used to set up your home school. (however, small white boards that each child uses individually, or smaller maps that each child might have like the size of a placemat are deductible).
Reference books like hardcover dictionaries, encyclopedia sets, or a hard cover atlas. (however, a paperback dictionary or thesaurus is allowed).
Weight lifting equipment, shop equipment, appliances, or a piano.
Memberships to museums, YMCA, health clubs, Zoos or state parks. (However, additional fees paid to attend a class above and beyond membership is deductible).
Internet access fees.
Your own expenses for mileage transporting children to and from activities, field trips, extracurricular activities, etc.
Sports uniforms, band uniforms or other uniforms. (gym clothes are allowed, so you can deduct a pair of tennis shoes, sweatpants and t-shirt per child per year, and a swim suit would be allowed if there were swimming lessons claimed).
Cost of classes or seminars for parents, conference attendance, or accrediting fees.
Tips if You Get “Reviewed”
Turn in all receipts, even if that’s more than you actually claimed. If they disallow some expenses, there are others to make up the difference.
Copy your receipts and write explanations on the copies when you send them in. Be as clear as possible to speed the process.
You don’t need your accountant, tax preparer or tax attorney for this kind of review. The Dept of Revenue is simply asking for your receipts and the details. You know this information better than anyone. Don’t pay for professional services that you don’t need.
After you submit your receipts, you’ll hear back from the Dept of Revenue regarding anything they may have disallowed. You can call and challenge those findings or submit a written appeal with more information supporting your claim.
Their determination can change your return, but you won’t be assessed any penalties or interest charges as a result of the review findings unless your return was clearly fraudulent (claiming expenses without documentation).
If you find yourself strongly disagreeing with the review person in charge of your return, you can ask to speak to a supervisor.
If they disallow an expense under a certain heading (typical school day course) be sure they add it back in under the appropriate heading (extracurricular fees).