The deduction for educator supplies expired at the end of 2009. Congress might extend it for 2010.

If you're a K-12 teacher and worked in a school at least 900 hours during the year, you can deduct up to $250 of the amount you paid for equipment used in the classroom, including:

• Supplies
• Books
• Computer equipment

To qualify, these materials have to be ordinary and necessary to your regular duties.

Don't include supplies related to home schooling.

You can claim the deduction even if you don't itemize deductions. If you paid more than $250, and you itemize deductions, you might be able to deduct the amount over $250 as a miscellaneous itemized deduction.

If you're married filing jointly and your spouse is eligible, your spouse can also deduct up to $250 of qualified expenses.

Many teachers have the opportunity to participate in their employer's tax-sheltered annuity retirement program, also known as a Section 403(b) plan. If you participate in this type of plan, you agree to contribute a portion of your salary into the plan each pay period.

Generally, the amount you put in the plan isn't taxed until you withdraw it from the plan. Additionally, income and gains earned in the plan also aren't taxed until you withdraw them.

You can put up to $16,500 into the plan for 2010. If you're 50 or older and your employer permits it, you can put in up to $5,000 more. If you've worked for 15 or more years, you might be able to put in up to an additional $3,000.

A 10% penalty applies to amounts you take from the plan before you reach age 59 1 / 2.

See Publication 571 to learn more.

You can transfer the amount in your tax-sheltered annuity plan, tax-free, to:

• A traditional IRA
• Another tax-sheltered annuity plan
• A governmental Section 457(b) plan
• A qualifying employer plan, including:
• Pension plans
• Profit-sharing plans
• Section 401(k) plans
• Qualified annuity plans

You can transfer the balance to a new employer plan only if the new employer permits it. If allowed, you can transfer the balance in 1 of 2 ways:

• Have your old employer transfer the funds directly (direct rollover, for example) to the new plan.
• Make the transfer yourself.
• Transfer the funds to the new plan within 60 days of the date you receive the distribution.

If the balance is paid directly to you, the distribution is subject to 20% federal income tax. If you later choose to transfer the balance to another retirement plan, you'll have to come up with the 20% withheld and include it with the transferred funds.

Teachers have several options for claiming tax benefits for their education expenses, including:

• Tuition and fees deduction (This deduction expired at the end of 2009. Congress might extend it for 2010.)
• Lifetime Learning Credit
• Itemized deduction for work-related education

You have to reduce the amount of your expenses by any reimbursement you receive that isn't included in your income.

The option resulting in the lowest tax may differ from year to year. Look at these factors to decide which option will give you the lowest tax:

• Amount of education expenses
• Amount of your (and your spouse's, if you're married) income and other deductions
• Whether the expenses are considered to be work-related

Complete your return using all available options and choose the option that results in the lowest tax. You can't use the same expenses for more than 1 of these options.

See Publication 970 to learn more.

This credit equals 20% of your family's qualifying education expenses - up to $10,000.

Expenses don't have to be work-related. You can include your tuition and fees but generally can't include:

• Books
• Supplies
• Room and board
• Transportation to and from class
• Other expenses

For 2010, you can claim the credit only if your adjusted gross income (AGI) is less than $60,000 ($120,000 if you're married filing jointly). Don't include any education expenses you use to claim another tax benefit.

See Publication 970 to learn more.

The tuition and fees deduction expired at the end of 2009. Congress might extend it for 2010.

You can claim a deduction of up to $2,000 of your qualifying higher-education expenses if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if you're married filing jointly).

You can deduct up to $4,000 of your expenses if your MAGI isn't more than $65,000 ($130,000 if you're married filing jointly).

Expenses don't have to be work-related. You can include your tuition and required fees but generally can't include:

• Books
• Supplies
• Transportation to and from class
• Other expenses

You must pay your higher-education expenses before 2010 to qualify for this deduction.

You can claim this deduction even if you don't itemize deductions. This deduction is advantageous if your income is too high to claim the Lifetime Learning Credit.

See Publication 970 and Form 8917 to learn more.

You can choose to deduct your expenses as an itemized deduction if both of these apply:

• Your education is considered work-related.
• Your total expenses are more than 2% of your AGI.

In addition to your tuition and fees, you can deduct the cost of books and supplies and, in some situations, your transportation to or from work to class. If you travel out of town for qualifying education, you might be able to deduct the cost of your travel. There's no limit on the total amount of your deduction.

Expenses are considered work-related if:

• They don't qualify you for a new trade or business.
• They allow you to maintain or improve your skills.
• They're required for you to keep your job.
• They're required for you to advance in your teaching position.

See Publication 970 to learn more.

You can't deduct the cost of travel as a form of education.

The IRS provides this example: A French language teacher travels through France while on sabbatical to improve her knowledge of the French language. She chooses her itinerary and most of her activities to improve her French language skills.

She then spends most of her time visiting French schools and families, attending movies or plays, and such. The teacher's travel expenses aren't deductible as education expenses.

Even if your employer reimburses you for your education expenses, up to $5,250 isn't included in your income and is therefore not taxed. The most you can exclude from your income is $5,250 in total, even if you had more than 1 employer.

If you can deduct education expenses as a business expense, it isn't taxable to you, even if the total reimbursement for the year is more than $5,250.

Your employer will include any taxable amounts in your wages on Form W-2.

If you're allowed to take courses at an eligible educational institution for free, or at a reduced rate, you've received a benefit called a tuition reduction.

An eligible educational institution:

• Maintains a regular faculty and curriculum
• Has students who are regularly enrolled at a place where teaching take place

Tuition reduction isn't taxable if you:

• Receive it from an eligible educational institution
• Use it at an eligible educational institution
• Are a graduate student who teaches or does research for the institution providing the reduction
• Are an undergraduate and:
• An employee of the eligible institution
• A former employee of the institution who retired or left on disability
• A widow(er) of someone who died while employed by an eligible school
• A widow(er) of someone who retired from an eligible school
• A widow(er) of someone who left an eligible school on disability

The reduction also isn't taxable if you are the dependent of an individual previously described.

You don't have to use the reduction at the institution from which you receive it.

The taxable amount of your tuition reduction, if any, is reported in box 1 of your Form W-2.