About · Press · Contact · Write For Us · Top Personal Finance Blogs
Featured In:

Don’t Create a Tax Deduction For the Sake of Having a Tax Deduction

By Erik Folgate

I read all the time about financial people advising to set your life up to be eligible for as many tax deductions as possible.  They give you all of the numbers and show you how much money you can save throughout the year if you have a mortgage, student loan debt, and various other things that create a tax deduction.  However, the financial world has gone one step further to encourage consumers to keep their debts that are tax deductible for as long as they can to milk the deductions.  This is completely absurd, and again, anything you say to me will not change my mind about it.  NEVER CREATE A TAX DEDUCTION JUST FOR THE SAKE OF HAVING A DEDUCTION. 

If you pay the government $1500 in interest for the year, then you’ll save about a hundred dollars in taxes.  BIG DEAL!  I would gladly take $1500 from you and give you back 10 – 20% of it at the end of the year.  People are being advised every day not to care about paying off their mortgages or student loans because it creates tax savings.  Why would you ever tell someone to keep debt around to receive an amount of money that is considerably less than what you are paying out in interest each year?  It does not make sense to me.

By all means, if you have something that is tax deductible, then you DEFINITELY take advantage of the tax deduction.  But never let it dictate the way you handle your money.  If you have the ability to pay off your student loans or mortgage, then that is always a better way of using your money than making a stupid 5% return on it and continue paying interest to the bank.  My point is that you should never keep something that charges a large amount of interest for the sole reason of having tax savings.  The savings is never enough to justify keeping it around. 

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

Related Articles

  • Pingback: Wide World of Blogs | Your Finances 101()

  • SZ

    I completely agree with this, but SO many people don’t get it. With taxes, it is almost always the opposite of what one thinks. Just like if you’re paying more income tax (all else equal), it probably means you’re actually making more income! So that’s a good thing, not a bad thing. If you’re getting more deductions, then chances are, you’re paying more money somewhere than if you were to get less deductions. So it’s actually a bad thing.

    Another tax “opposite” people don’t understand: After filing taxes, you want your tax refund to be as little as possible because that means you’ve kept more of the money that belonged to you in the first place without lending it to the government for free throughout the year.

The content on MoneyCrashers.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.

Advertiser Disclosure: The offers that appear on this site are from credit card companies from which MoneyCrashers.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. MoneyCrashers.com does not include all credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, U.S. Bank, and Barclaycard, among others.