Lessons Learned From Filing My Taxes Last Night

So, I buckled down last night and busted out my taxes.  Mine aren’t that complicated, but they seem to get progressively more complicated each year.  If I ever start a business full-time, I’ll definitely be hiring an accountant to file them.  I used Tax Act Online, and I highly recommend this service.  First of all, if you’re taxes are fairly simple, you can use their free service and file electronically for free.  If you want direct deposit, they’ll charge you $14.95, but not bad for the convenience.  If you want the deluxe package, it’s $9.95.  I opted to get the deluxe package, because it helps explain a lot of the deductions and credits to layman such as me when it comes to taxes.  While I was pulling my hair out trying to find all of the information that I needed,  I learned something about the education credits and mortgage interest/real estate tax deductions while filing my taxes this year. 

Hope and Lifetime Learning Credit

If you are eligible for these credits, take advantage of them!  For the Hope Credit, you have to be helping to pay the tuition for yourself, spouse, or child whom is in their first two years of post-secondary school.  For the Lifetime Learning Credit, you have to be helping to pay tuition for yourself, spouse, or child whom is taking a certification course or going to some kind of graduate schooling.  The credit is amazing.  Let’s say that you paid your spouse’s $5,000 tuition in 2006, then you’ll get a tax credit of $1,000.  Credits are where it’s at because they deduct straight from your owed tax for the year.  I’m not a tax expert nor certified to give tax advice, but if you think you qualify for this one, check it out or ask a CPA if you qualify to use it. 

Mortgage Interest and Real Estate Tax Deductions

This is the first tax year that I had a mortgage, so I was all stoked to get a deduction for my mortgage interest and real estate tax that I paid this year.  What I didn’t realize is that it’s not a straight deduction meaning that you don’t get a percentage of what you paid in interest deducted from your adjustable gross income.  The student loan interest DOES work that way, but not mortgage interest and real estate tax.  In order to get the tax savings, you need to do an itemized deduction rather than a standard deduction.  I filed married-jointly, and my deductions for mortgage interest and real estate tax were less than $10k, so the standard deduction makes more sense.  Basically, if you have a $100,000 mortgage and live in a low-taxed area, don’t get excited about the “tax benefits” of owning a home or carrying a mortgage.  I guess the only people that get pumped for the tax benefits of carrying a mortgage are single people with $300,000 mortgages.  I’m sure it’s a nice deduction if you have a ton of mortgage interest paid and a very high real estate tax bill.  This solidifies why I shake my head at people who INSIST on keeping their mortgage rather than trying to pay it off early because of the “tax advantages”.  I guess it works out sometimes, but only for those with high incomes who can afford expensive mortgages.

Who’s with me on throwing out the entire  5,000 page volume of tax codes?  What is the point?  I say just tax us a set amount and throw out all of the loop holes that the rich take advantage of to get out of paying more taxes.  See my post on the Fair Tax.  What do you think about that?  I like the idea of those that spend more get taxed more.  Doesn’t it make sense?  Rich people will get taxed more for their spending habits and poor people will be discouraged to spend more than they can afford, which in turn will help them from being poor!  Maybe it’s only in a perfect world, but it seems like a reasonable alternative.  Let me know if you hate or like the idea and why. 

  • http://moneyshakerblog.com ES

    I miss my home mortgage deduction! I had a non-working, full-time student spouse so I had deductions up the wazoo. I also had phatom real estate losses (depreciation deductions really) so my net taxable income was $12,000. So except for FICA and real estate taxes, I didn’t pay any income tax!!!

    This year I’ll probably get my real estate license so I can claim unlimited real estate passive losses against my regular income. (otherwise you’re capped at 25k/yr)

    the flat tax would be awesome! you punish people for spending and reward them for saving. thats how it should be.