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New school year started and it is right time to remind teachers and parents about saving receipts and keeping good records to take advantage of various education-related deductions and credits on their 2007 federal income tax return.

“The start of the school year is a good time to remind parents, students and teachers to save all receipts related to tax-advantaged education expenses,” an advice posted in the IRS Newswire by Acting Commissioner Linda Stiff. “Good recordkeeping makes sense because it can help avoid missing a deduction or credit at tax time.”

Tax Deductions reduce the taxable income on which tax is calculated. Tax Credits reduce the overall tax. Though both can increase their tax refund, tax credits normally result in greater tax savings. The eligible teachers can claim tax deduction up to $250 for the cost of books, supplies, equipment and software used in the classroom. To eligible for the educator tax deduction, one need to work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide in a public or private elementary or secondary school.

In tax-year 2005, teachers and educators deducted just over $893 million of these out-of-pocket classroom expenses. The sad news is that under current law, this tax deduction is set to expire at the end of 2007 unless law makers take some action.

Parents and tuition paying students have three tax breaks to choose; the tuition and fees deduction, the Hope credit and the lifetime learning credit. Under current law, the tuition and fees deduction is scheduled to expire at the end of 2007, but the two credits remain in effect. In tax-year 2005, taxpayers claimed tuition and fees deductions totaling nearly $11 billion and education credits of almost $6.2 billion.

Normally, parents can claim tuition and required enrollment fees paid for their own and their dependent’s college education. They cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Income limits and other special rules apply to each of these provisions. For more details on Tax Benefits for Education refer IRS Publication 970.

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