Taxes and Homeschoolers

This is a popular topic. What does Carol say?

Are there any tax breaks for homeschoolers?

One of the most popular questions asked on my website, HomeschoolCPA.com, is, “Are there any tax breaks for homeschoolers?” Unfortunately, there are no tax deductions or tax credits for homeschool expenses from the federal government, but there may be tax deductions from your state income tax.

Arizona, Illinois, Iowa, Louisiana, and Minnesota have educational tax credits for individuals. The tax credit is available to any public or private school student, so it is not unique to homeschoolers. Home School Legal Defense Association has a detailed explanation of each of these state programs and tax credits. Visit http://HSLDA.org and search “Education Tax Credits.”

Clever Ideas to Find Tax Deductions (That Don’t Work)

Homeschoolers sometimes get creative and wonder if they could start a business or a nonprofit organization for their homeschool activities and then deduct their expenses.

Jim, a homeschool dad, thought he could start a business, hire his wife to teach his children and deduct the business’s expenses (curriculum, field trips, mileage, etc.). This won’t work for several reasons: the wife would have to report her wages as taxable income, wiping out any tax benefit; Jim does not have a trade because he has no paying customers and no revenue; and finally, the IRS would disallow the homeschool expenses because they are personal expenses, not legitimate business deductions.

A new homeschool parent, Jena, asked if she could receive donations to cover her homeschooling expenses. Jena can accept gifts from generous people, but they will not be tax-deductible donations to the donor because Jena’s family is not a 501(c)(3) qualified charitable organization.

What the IRS Says About Homeschool Deductions

The IRS will not grant qualified charity status to an individual family or any organization that is formed solely to benefit the founder’s family. So, while a homeschool co-op may be eligible to receive tax-deductible donations (if it has 501(c)(3) qualified charity status), a family cannot receive tax-deductible donations. The best Jena can hope for is that friends and family might offer her gifts of curriculum, school supplies, or cash. These gifts are not tax deductions for her generous friends, but neither does Jena report these gifts as income on her tax return.

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Can Homeschoolers Use 529 Funds?

In late 2017, Congress expanded 529 college savings plans to be used for K-12 expenses, but. Congress specifically excluded homeschool expenses from using 529 funds. That seemed unfair to a lot of homeschoolers. But there may be a way for homeschoolers to use their 529 savings accounts for some K-12 expenses.

There are two conditions for using 529 funds for K-12 expenses:

1) the costs must be for tuition and

2) the institution the family pays must be “a public, private, or religious school.”

Some homeschooled students take classes from private schools (locally or online). The tuition payments to these schools can use 529 funds. But the cost of books, supplies, equipment, and payments to organizations that are not schools cannot use 529 funds. Be careful that the tuition payments go to a public, private, or religious school. In my experience, most homeschool programs (co-ops, tutorials, etc.) are not schools. If you have any concerns about their school status, do not use 529 funds to pay for the tuition. Withdrawals from a 529 fund that are not “qualified” (i.e. tuition paid to a public, private, or religious school), then you pay income tax and a penalty of 10% on the funds withdrawn from the 529 plan.

About the Author:

Carol Topp, CPA, is a retired homeschool mom and author of 13 books, including Homeschool Co-ops: How to Start, Run, and Not Burn Out. She hosts a podcast for homeschool group leaders at http://DollarsAndSenseShow.com. Her website is http://HomeschoolCPA.com.

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