Income Tax Help for Teachers (I)

by R. L. Fielding

From purchasing classroom supplies to paying for grad school tuition, a career in teaching can leave a person feeling a bit light in the wallet. Fortunately, there are a number of tax breaks available to educators. If you're a teacher looking for income tax help, here's what you need to know:

Reporting Income from Tutoring
The educational institution employing you should provide you with a Form W-2, Wage and Tax Statement, which reports your income from wages, prizes or awards. Payments that you receive for providing services as a tutor, in addition to your regular job, may be considered income from self-employment and are reportable on Schedule C, Profit or Loss from Business. Examples include tutoring high school students and college students after school or providing music lessons to any individual (voice, piano, drums, guitar, etc) on the weekends.

If you are self-employed and your net earnings are $400 or more, you must pay self-employment tax on the income you report on Schedule C. In addition, you may need to make estimated payments to cover the amount of self-employment tax or income tax associated with the income you report on Schedule C.

Deducting Continuing Education Expenses
You may be able to reduce your taxes by deducting expenses for tuition incurred in pursuing graduate school or other additional education. If the education is part of your state school board's certification renewal process, it may be deductible. However, if the education is needed to meet the minimum educational requirements to qualify you for a particular position, or if the education will qualify you for a new trade or business, it is not deductible. Changing from an elementary school teacher to a secondary school teacher or changing the subject you teach, from biology to art, for example, is not a change to a new business. Classroom teachers that become guidance counselors or school administrators are also not considered to have changed their trade or business.

Once you have met the minimum educational requirements for teachers for your state, you are considered to have met the minimum educational requirements in all states. This is true even if you must get additional education to be certified in another state. Any additional education you need is qualifying work-related education. You may still be able to obtain a benefit from educational expenses that do not qualify for a work-related education deduction if you qualify for the Hope Credit, the Lifetime Learning Credit, the student loan interest deduction, or the tuition and fees deduction.

Deducting the Cost of Supplies
If you are a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year, you are allowed an above-the-line deduction of up to $250 of qualified expenses you paid during the tax year. This deduction directly reduces your income, and you do not need to itemize deductions to obtain this benefit.

While supplies used for home schooling or non-athletic supplies used for courses in health or physical education do not qualify, you may be able to deduct the out-of-pocket cost for supplies that exceed the $250 limit if you itemize your deductions. You should keep receipts to substantiate all expenses.

About the Author
R.L. Fielding has been a freelance writer for 10 years, offering her expertise and skills to a variety of major organizations in the education, pharmaceuticals and healthcare, financial services, and manufacturing industries. She lives in New Jersey with her dog and two cats and enjoys rock climbing and ornamental gardening.

IRS Tax Attorney

by Jem Smith

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About the Author
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New Tax Law Increase Business Deduction by

RJ CAPPUCCIO

On May 25, President Bush signed the new Tax Law whichThe new law extends the current favorable Section 179 deduction rules through the 2010 tax year and makes some favorable changes as well:

Maximum Deduction Increased to $125,000. For tax years beginning in 2007, the maximum Section 179 deduction is generally increased to $125,000 (up from the $112,000 figure that applied before the new law). For tax years 2008 through 2010, the $125,000 amount will be indexed for inflation.

Liberalized Phase-Out Rules. If a taxpayer adds qualifying property (typically equipment and software) in excess of the annual threshold, the maximum Section 179 deduction for the year gets reduced (phased out). For tax years beginning in 2007, the phase-out threshold is generally increased to $500,000 of qualifying property (up from the $450,000 threshold that applied before the law). The $500,000 amount will be indexed for inflation for tax years 2008 through 2010.

Most Software Qualifies for the Deduction. The provision that allows Section 179 deductions for the cost of most off-the-shelf software products is extended through the 2010 tax year.

Favorable Amended Return Rules Extended. A provision that allows Section 179 elections to be changed or revoked on amended returns is extended through tax years beginning in 2010.

Key Point: Unless Congress takes further action the unfavorable "old-law" rules will kick back in starting with tax year 2011. Under the old-law rules, the maximum annual Section 179 deduction will fall back to $25,000. The deduction phase-out threshold will decrease to only $200,000. Software costs will be ineligible, except for software that is bundled with qualifying hardware. Finally, taxpayers will not be allowed to change or revoke Section 179 elections on amended returns

Owner Financing - How do I Calculate the Payments?

by Data Designs


So you sold your property and took back a mortgage. Congratulations! The buyers seem like nice regular folks and promise to make their monthly payments on time.

Your attorney or closing agent gave you a neat amortization schedule with all the payments listed for each month and how much goes to principal and how much to interest. You even get to collect an extra few bucks if the payment is not received on time.

But what if you don't get a payment for that month? What if the payment is less than you expected - or more than you expected? Now your neat amortization schedule is worthless. How do you calculate these irregular payments? How much is interest? What's the remaining principal balance? What's the total interest received for the year?

Well - easy. If the mortgage is a standard monthly payback, you just take the remaining principal and divide it by the interest rate and then divide the result by twelve. Now you have the interest amount due for that month. Subtract that amount from the payment you received and then subtract the remainder from the remaining principal balance. And there you have it.

But what if the payment you received is less than the interest due for that month? Well - easy. Just subtract the amount received from the actual interest due and add the remainder to the principal balance.

But what if the borrower comes by a week later and gives you more money? Well - easy. Just subtract the entire amount from your remaining principal balance because you have already allocated the total interest due for that month.

But what if you don't get a payment at all for that month? Well - easy. Unless you want to give the borrower the gift of a free month interest, add an amount equal to what the interest for that month should be to the principal balance. In this case, you do not want to add this amount to interest received, because you didn't receive anything!

So you see, it's not so hard. Naturally, you are keeping accurate records of all these payments including date due, date received, amount, interest, principal, penalty (if any) and the balance remaining after each payment. At the end of the year, simply add up all the interest received. You must report any mortgage interest received on your income tax return and are required by law to provide the borrower with a form 1098 Mortgage Interest Statement for tax purposes, so be sure that your figures are accurate.

If all this seems daunting or too complicated, consider LoanShark, a software solution built for people just like you. LoanShark desktop software for Windows(tm) will take care of managing all your incoming mortgage or loan payments as you receive them and do the calculations for you. It will keep a profile of your borrower(s) and also keeps track of other important information you need at tax time.


About the Author
Data Designs is the owner/developer of LoanShark, a loan management software application for mortgage lenders, investors, note buyers, collection agents and private lenders with one or more accounts. Download a no obligation, free trial version of LoanShark today.