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What Tax Advantages Are Available to Homeschoolers?

Curtis Ophoven

9/15/2008 - 9 Comments

These are several different ways that a homeschooling family can save money by taking advantage of the few tax benefits that are available for homeschoolers.

Education tax credits and tax deductions both reduce a family’s tax liability. For example, Iowa, Illinois, and Minnesota offer various tax credits and deductions for education-related expenses, including private school tuition and payments for instructional materials.

Federal Tax Deductions

At the Federal level, there is no provision for a tax savings.  The IRS only gives tax advantages to businesses (both for profit and non-profit). Homeschooling is neither, and therefore is considered a hobby to the federal government. 

But, a group of homeschoolers can form a non-profit organization that is useful to organize and plan functions with the purpose or providing services to the homeschooling community.  Under a non-profit organization, homeschoolers can collect money and pay for materials and services needed to operate the organization without having to pay taxes on the money they collect.  They operate under the same guiding principles of a church.  We are a member of several of these organizations.

As education reform continues to gain political momentum, educational choices are becoming more popular. The concepts of vouchers, which are a direct governmental grant to be used for private or charter schools, are gaining support.  Homeschoolers could someday be able to receive funding for schooling their children.  Last year, homeschoolers saved the government nearly $10 billion dollars by educating their own children.     

State Tax Deductions

Only a few states offer an education tax credit. In Minnesota, you can deduct all materials that a school requires a child to have, but you need to save your receipts to prove it. 

According to the MN Department of Education’s website,

“Tax Deductions:  (M.S. 290.01, subd. 19b) were first enacted in 1995 and were most recently modified by the 1997 legislature.  They are available to all families, regardless of income and regardless of whether they itemize on their tax returns.

In 1997, deductions for each dependent child in kindergarten through sixth grade were increased from a maximum deduction of $650 to $1,625; deductions for each dependent child in grades 7 to 12 increased from a maximum of $1,000 to $2,500."

Last year, we spent $1800 homeschooling two children for a savings of ($1800 x 7%) = $126.

State Tax Credits

A tax credit is a reduction of the taxes that you would have had to pay.  Many families only receive this money when filing for their year end taxes, because they have paid in too much taxes throughout the year after applying the educational tax credit. 

Educational tax credits are geared toward helping low income families, combating poor quality of public education, and helping students with learning disabilities. 

According the Minnesota Department of Education’s website,

“Tax Credits:  (M.S. 290.0674) were enacted by the 1997 Legislature and first took effect for 1998
Families with school-age children and incomes at or below $33,500 per year may qualify for a tax credit of up to $1,000 per child ($2,000 per family) to reimburse them for certain educational expenses, including tutoring, academic summer camps, enrichment programs, textbooks and instructional materials, home computer hardware, educational software, and some expenses associated with individual schools.

In 2005, the education credit's household income (federal adjusted gross income plus most nontaxable income) limit is based on the number of qualifying children you have in kindergarten through grade 12.  If you have two or less qualifying children, your 2005 household income (your federal adjusted gross income plus most nontaxable income) must be less than $37,500.  The household income limit increases by $2,000 for each additional qualifying child.“

Here is another article from the HSLDA with further information about Education Tax Credits.  Currently, only four states off an educational tax credit, but many others are in the process of adding their own legislation to help improve education within their states. Eduction Tax Credits

Here is an article with more detail about each states provision for Tuition Tax Credits, in which homeschooling is sometimes considered.

We do not quality for any of these tax credits because our income is higher then the minimum, but if you do quality, I suggest you take advantage of these tax credits.

State Sales Tax Exemption

I am not aware of this exemption is any state other then Minnesota.

MACHE is a large non-profit organization within Minnesota that has fought very hard for the legal protection of homeschoolers and they have also persuaded the MN Department of Revenue to allow homeschoolers to file for a Sales Tax Exemption status. I believe the primary reason is because homeschoolers are treated like private school teachers. Here is what they say on their website.  http://www.mache.org/LegLawSalesTaxExemptions.htm

“Are Homeschool Purchases Exempt from the Sales Tax? The Legislature provides for nonprofit "educational organizations" to be exempt from the sales tax for purchases of items necessary to fulfill their educational purposes. If you read the Department of Revenue's rules strictly, it is hard to fit home education under the definition of an "educational organization".

Nonetheless, the Corporate and Sales Tax Division of the Department of Revenue struggled with this question a number of years ago and issued an opinion they titled, "Sales Tax Information on Home Schools". The Department determined that home schools are entitled to an exemption from the state sales tax for educational purchases. I met with Anne Gravelle of the Department, the contact person listed on the opinion. She stated they recognized that home educators are providing the same benefit as any other school and, therefore, should receive the sales tax exemption for educational purchases.”

“Because homeschoolers do not nicely fit into the rules, the Department established a procedure by which homeschool families could obtain a sales tax exemption number (ES#). The procedure has been that a homeschool would simply fill out Form ST16, "Application for Certificate of Exempt Status" available from the State Department of Revenue.”

“The fact that homeschool purchases are entitled to a sales tax exemption comes from a generous interpretation of the law by the present staff of the Minnesota Department of Revenue. This could change with a new administration or staff at the Department. Therefore, if you experience any problems in future, please let MACHE know immediately. Don't assume that this privilege is set in stone.”

What this means is that you can fill out this form and get a sales tax exemption number that you can bring to any store that you purchase school materials like, Office Max or Barns and Noble or any vendor at a homeschooling convention.  You just show them your sales tax exemption number and you can purchase your items without paying sales tax.  It may sound like a bit of work, but you could save your family some money.  We probably save around $50/year with this benefit.

In conclusion

Taken together, our famliy saves about $200-$300 per year with these tax advantages.

Copyright © 2008 SaveMoneyHomeschooling.com. All rights reserved.

Reader Comments

Comment 1
Sisterlisa Says: on Tuesday, September 23, 2008 8:12:31 AM

Interesting article. Can you please tell me where you got your information about us saving the government $10 Billion by homeschooling? Thank you.

Comment 2
Curt Says: on Tuesday, September 23, 2008 11:43:08 AM

@Sisterlisa - Sure, homeschoolers actually saved the government $16 billion according to the research of The National Home Education Research Institute.

Here is an article, Research Facts on Homeschooling, which says;
http://www.exploringhomeschooling.com/ResearchFactsonHomeschooling.aspx
"Families engaged in home-based education are not dependent on public, tax-funded resources for their children's education. The finances associated with their homeschooling likely represent over $16 billion that taxpayers do not have to spend since these children are not in public schools."

Also, you can simply calculate the amount by considering the estimated 2.2 million homeschool students and the average cost the government spends per student of $12,000, which comes to $26.4 billion. I think this number is much more accurate.


Comment 3
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homeschooling can form a non-profit organization that is useful to organize and plan functions with the purpose or providing services to the homeschooling community. Under a non-profit organization,home school can collect money and pay for materials and services needed to operate the organization without having to pay taxes on the money they collect.Educational tax credits are geared toward helping low income families, combating poor quality of public education, and helping students with learning disabilities.

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homeschooling can form a non-profit organization that is useful to organize and plan functions with the purpose or providing services to the homeschooling community. Under a non-profit organization,home school can collect money and pay for materials and services needed to operate the organization without having to pay taxes on the money they collect.Educational tax credits are geared toward helping low income families, combating poor quality of public education, and helping students with learning disabilities.

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