Smart Tax Moves for Back-to-School Season
As students return to the classroom, families and educators should take a fresh look at the tax rules that may help offset education expenses. Careful recordkeeping now can make it easier to identify available benefits when tax season arrives.
Two federal income-tax credits may be available for qualified higher-education expenses:
- The American Opportunity Tax Credit generally applies during a student’s first four years of postsecondary education.
- The Lifetime Learning Credit may apply to undergraduate, graduate, professional-degree and job-skills courses.
Eligibility depends on several factors, including income, enrollment status, the type of expenses paid and whether the student is claimed as a dependent. A family cannot claim both credits for the same student in the same year, and the same expense generally cannot be used for both a tax-free education benefit and a credit.
Families should retain tuition statements, payment confirmations, receipts for required books and supplies, and records of scholarships or other financial assistance.
Review the expanded 529 plan rules
Earnings in a Section 529 education savings account generally grow tax-free, and withdrawals are generally excluded from federal taxable income when used for qualified expenses.
For 2026, the federal rules permit up to $20,000 per beneficiary to be withdrawn annually for an expanded range of qualifying K–12 expenses. These may include tuition, curriculum materials, books, tutoring, standardized testing fees, dual-enrollment fees and certain educational therapies for students with disabilities. The $20,000 limitation applies collectively across all 529 accounts maintained for the beneficiary.
529 funds may also be used for qualifying postsecondary education, registered apprenticeship programs, certain credentialing expenses and limited student-loan repayments. However, state treatment may differ from the federal rules, so families should consult their tax advisor before taking a distribution.
Be especially careful when coordinating 529 withdrawals with education credits. Expenses used to support a tax-free 529 distribution generally cannot also be used to claim an education credit.
Eligible K-12 teachers, instructors, counselors, principals and aides may deduct up to $300 of qualifying unreimbursed classroom expenses. To qualify, the educator generally must work at least 900 hours during the school year.
Potentially qualifying expenses include books, classroom supplies, computer equipment, supplementary materials and professional-development courses. Educators should retain itemized receipts and records of any employer reimbursements.
Keep records as expenses are paid
Create a dedicated folder – electronic or paper – for tuition statements, receipts, account distributions and reimbursement records. Education benefits frequently overlap, and determining the best tax result may require allocating expenses among several programs.
Before making a substantial 529 withdrawal or selecting an education credit, please contact your DBMCPA advisor. Advance coordination can help preserve the available tax benefits and prevent the same expense from being counted twice.
