Private School Tuition Can Be Tax Deductible in Some Cases

If private school tuition is a blow to your bank account, get this: There’s always taxpayer-funded public school! All jokes aside, you may be wondering if private school tuition is tax deductible.

Here’s the scoop on when — and where — you may be able to deduct private school tuition on your taxes to reduce your liability come tax season.

Private tuition for K–12 schools isn't tax deductible at the federal level. Most of the education-related tax breaks in the U.S. focus on college and other continued education. For example, the IRS offers educational credits including the American opportunity tax credit (AOTC) and the lifetime learning credit (LLC). These tax breaks are for anyone pursuing higher education.

Naturally, private grade school doesn't fall into this camp. (Of course, taxpayer-funded public schools also exist, giving governments a reason not to implement tax breaks for private school tuition since parents technically have another option.)

Education tax credits can be found at the state level in these states:

• Alabama

• Illinois

• Indiana

• Iowa

• Louisiana

• Minnesota

• Ohio

• South Carolina

• Wisconsin

School choice tax credits and deductions provide backdoor financial support for parents’ educational expenses. These incentives are based on income and include private K–12 education costs.

There may also be tax-credit scholarships available depending on your state. This type of program grants scholarship money in the form of a tax credit (reducing taxes owed) vs. a deduction (reducing taxable income).

A Coverdell Education Savings Account (ESA) is “a trust or custodial account set up in the United States solely for paying qualified education expenses for the designated beneficiary of the account,” the IRS says.

How does it work? Parents contribute up to $2,000 of post-tax money annually to an ESA to finance qualified education expenses (like private school tuition, for example). Contributions themselves are not tax deductible, but qualified distributions are free from taxes. Since you can invest the money in funds that the account provider offers, this money can grow without getting hit by capital gains taxes, much like a Roth IRA.

There are intricacies to these tax-free distributions, so make sure you read up on the IRS website and consult with a tax professional to ensure you’re doing everything correctly.

FYI: For a Coverdell ESA, the designated beneficiary must be under 18 years of age when the account opens or have special needs. Plus, they can hold the funds in the account until no more than 30 days after their 30th birthday.

While you can’t deduct private grade school tuition on your taxes outright, there are ways to get around it. Consider opening up an ESA or utilizing state-based incentives, if available, to reap the benefits of the U.S. tax code to account for those extra educational expenses in your children’s lives.