Is Preschool Expense Deductible From Gross Income on 1040?

Tax breaks are limited for preschool tuition.

Tax breaks are limited for preschool tuition.

Sending your child off to preschool can be a gut-wrenching event if it's the first time your child's going to be away all day, but also because of the impact on your budget. Though the educational benefits of a quality preschool for your child are large, the tax benefits of paying the tuition bill aren't quite as helpful.

No Tuition and Fees Deduction

Uncle Sam offers a tuition and fees deduction to help with higher education costs. However, no matter how advanced the preschool classes, these only apply to post-secondary education expenses, such as attending college or a trade school, so paying for preschool will not qualify for any of these deductions or credits. In addition, you cannot exclude any otherwise taxable income paid for preschool from income. For example, if you have $56,000 of taxable income and pay $3,000 for preschool, you can't simply report $53,000 of income.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts offer a way for you to save money for your child's education costs, including preschool costs. You don't get a tax deduction for contributing to ESAs, but the money does grow tax-free in the account. When you take distributions, as long as the entire amount is used for qualified expenses. Qualified expenses include tuition, fees, books, supplies and academic tutoring. For example, if you started an ESA for your child, and it had grown to $6,000 of contributions and $2,000 of earnings, the entire amount could be withdrawn tax-free if you have at least $8,000 of qualifying preschool costs.

Dependent Care Credit

The dependent care credit is available if you pay expenses for childcare for a qualifying child. A qualifying child is a child you claim as a dependent who is under 13 or younger at the time the care was provided, so your preschooler will qualify. The Internal Revenue Service treats preschool costs as a childcare expense, and therefore the costs are not eligible for the credit. However, enjoy it while it lasts because kindergarten is an educational expense, not a childcare expense.

Claiming the Dependent Care Credit

The dependent care credit can be as much as 35 percent of up to $3,000 of expenses for one qualifying child or $6,000 for two or more qualifying children. However, the percentage of the credit decreases by 1 percent for every $2,000 that your AGI exceeds $15,000, down to a minimum credit of 20 percent for AGIs exceeding $43,000. For example, if your AGI is $30,000, your credit would be 27 percent of your expenses.

 

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