Tax Savings Tips for Teachers
As a teacher, there are several ways that you can save on your income taxes. In this blog post, I discuss three of the most important.
Educators Expense Deduction: If you're a qualified teacher, you can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators). Qualified expenses are amounts you paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials you use in the classroom.
An eligible educator must work at least 900 hours a school year in a school that provides elementary or secondary education (K-12). College instructors do not qualify. For the purposes of this credit, an “educator” includes a:
-Teacher
-Counselor
-Principal
-Teacher’s aide
-School coach
For health or physical education courses, the expenses must be for athletic supplies. Qualified expenses also include the amounts for personal protective equipment, disinfectant, and other supplies used to prevent the spread of coronavirus. This deduction is for expenses paid or incurred during the tax year. So if you are married and both teachers, this can be a $500 deduction on your tax return! This educator's expense deduction is often overlooked because of the small about, but every little bit counts.
Retirement Plans: A second way to save on income taxes is to contribute to your school district's 403(b) plan. You can contribute up to $20,500 under age 50 in 2022. By contributing to a 403(b) plan, you are reducing your income and thereby saving on income taxes. Also, consider contributing to a traditional IRA if you are below the income limits to further save on taxes. If you don't save for retirement in a qualified plan outside of your pension, I would strongly suggest that you do so to create further tax savings and save for retirement. You can also save after tax in a Roth IRA and get tax-free growth on the earnings. You can open a traditional or Roth IRA with any major brokerage such as Schwab, Fidelity, and Vanguard. After yous set up the IRA, talk to a financial planner about what investment portfolio is suitable for your retirement goals.
FSAs and HSAs: A third way to save on taxes as a teacher are to contribute to a Flexible Savings Account (FSA) or Health Savings Account (HSA). An FSA comes in two varieties. One is for health care, and you can contribute with pre-tax dollars, or you can use a dependent care FSA for childcare. Both offer immediate tax savings by reducing your income. You can also take advantage of various insurance options such as low-cost medical insurance from your school district, disability insurance, and term insurance. Be sure to work with your financial planner or HR department to determine what your district offers in employee benefits that you can take advantage of pre-tax benefits.
These are just three ways that teachers can save on taxes. Saving on income taxes is just one way to maximize your take-home pay. Contact me on the page below if I can help with your financial planning.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.
