Taxes suck
April 10, 2006 7:52 AM Subscribe
Am I being cheated out of my Mortgage Interest paid?
It's tax crunch time! I'm using Turbo Tax to do my taxes. I paid close to $5000 in Mortgage Interest (MI) last year. My Tax Due amount doesn't change when I enter the MI. I was surprised by that, so I did a little experiment. I arbitrarily jacked up the amount of MI paid and my Tax Due did not change. I took it all away and it still did not change. Is this right? Am I somehow being cheated out of the MI I've paid? Does this have to do with points (of which I have none)?
It's tax crunch time! I'm using Turbo Tax to do my taxes. I paid close to $5000 in Mortgage Interest (MI) last year. My Tax Due amount doesn't change when I enter the MI. I was surprised by that, so I did a little experiment. I arbitrarily jacked up the amount of MI paid and my Tax Due did not change. I took it all away and it still did not change. Is this right? Am I somehow being cheated out of the MI I've paid? Does this have to do with points (of which I have none)?
Is it a first mortgage or a second? This can matter if you are paying alternative minimum tax (AMT). Also, both of the things Gungho said.
posted by The Bellman at 8:02 AM on April 10, 2006
posted by The Bellman at 8:02 AM on April 10, 2006
You don't have to tell TurboTax whether to take your standard deduction or to itemize, it automatically does that for you if your itemized deductions are high enough.
Standard deductions for 2005 are: Single, or married filing separately: $5,000; married filing jointly: $10,000; head of household: $7,300.
Now you only get to deduct your mortgage interest to the extent that your itemized deductions (including mortgage interest) exceed your standard deduction. If you have mortgage interest of $5,000 and no other itemized deductions, and are married filing jointly, you would be dumb to use the itemized deductions when your standard deduction is $10,000. And indeed, TurboTax is smart enough to figure this out and give you the standard deduction when it is better.
My guess is that you are in fact married filing jointly, based on the fact that when you entered $10,000 for mortgage interest your tax owed did not change. If this is the case then TurboTax is doing it correctly.
posted by kindall at 8:26 AM on April 10, 2006
Standard deductions for 2005 are: Single, or married filing separately: $5,000; married filing jointly: $10,000; head of household: $7,300.
Now you only get to deduct your mortgage interest to the extent that your itemized deductions (including mortgage interest) exceed your standard deduction. If you have mortgage interest of $5,000 and no other itemized deductions, and are married filing jointly, you would be dumb to use the itemized deductions when your standard deduction is $10,000. And indeed, TurboTax is smart enough to figure this out and give you the standard deduction when it is better.
My guess is that you are in fact married filing jointly, based on the fact that when you entered $10,000 for mortgage interest your tax owed did not change. If this is the case then TurboTax is doing it correctly.
posted by kindall at 8:26 AM on April 10, 2006
We are married filing jointly. Yes, lucyleaf is my wife. We did not itemize deductions this year. This is our first, and only, mortgage. Our taxable income was just over $50,000 and we owe $500 in taxes due. We hate it.
posted by spakto at 8:51 AM on April 10, 2006
posted by spakto at 8:51 AM on April 10, 2006
If you hate it, have your employers immediately raise the withholding on your paychecks (fewer deductions does this, I think...). Then you shouldn't owe as much.
Also consider putting money into a 401K (pre-tax, it'll lower your taxable income); and making some contributions to charity/church. Also be sure to track your mileage to/from doctors - the deduction is .20/mile now I think - all of this kind of stuff adds up.
posted by dbmcd at 9:31 AM on April 10, 2006
Also consider putting money into a 401K (pre-tax, it'll lower your taxable income); and making some contributions to charity/church. Also be sure to track your mileage to/from doctors - the deduction is .20/mile now I think - all of this kind of stuff adds up.
posted by dbmcd at 9:31 AM on April 10, 2006
Don't hate it too much. You have a house, and the things you can deduct if you itemize (medical expenses, charitable donations, state income taxes) mean you have less money to do other things (like pay your $500 tax bill). If you'd donated $7000, you could itemize deductions, but you'd be $6500 in the hole.
At least it's not death.
posted by rikschell at 9:39 AM on April 10, 2006
At least it's not death.
posted by rikschell at 9:39 AM on April 10, 2006
We did not itemize deductions this year.
Then you won't get a deduction for your mortgage interest, period. The way to look at this is that the government is letting you deduct extra over and above your mortgage interest in the form of your standard deduction.
dbmcd's advice is, IMHO, unsound. The goal is not to minimize taxes, the goal is to maximize disposable income and to maximize activities you want to engage in. For lots of people in normal circumstances in that income range, this is going to mean just taking the standard deduction and not modifying your conduct to do lots of things you wouldn't otherwise choose to do *and* spend lots of time documenting that you did it.
If you don't like owing, just have one or both of your employers deduct slightly more every month.
posted by ROU_Xenophobe at 9:54 AM on April 10, 2006
Then you won't get a deduction for your mortgage interest, period. The way to look at this is that the government is letting you deduct extra over and above your mortgage interest in the form of your standard deduction.
dbmcd's advice is, IMHO, unsound. The goal is not to minimize taxes, the goal is to maximize disposable income and to maximize activities you want to engage in. For lots of people in normal circumstances in that income range, this is going to mean just taking the standard deduction and not modifying your conduct to do lots of things you wouldn't otherwise choose to do *and* spend lots of time documenting that you did it.
If you don't like owing, just have one or both of your employers deduct slightly more every month.
posted by ROU_Xenophobe at 9:54 AM on April 10, 2006
If you don't like owing, just have one or both of your employers deduct slightly more every month.
I've never understood this recommendation. Isn't this the same as suggesting that you give the government an interest-free loan for a year? Better to deduct the money yourself (put it somewhere where it will earn some interest) and pay the taxes when they come due.
Yes, it sucks to get a bill when you do your taxes, but bear in mind that you're getting a "bill" everytime your employer deducts income tax from your pay. The folks getting the bill during tax season have the advantage of having been able to use the money for the whole year.
posted by gwenzel at 10:10 AM on April 10, 2006
I've never understood this recommendation. Isn't this the same as suggesting that you give the government an interest-free loan for a year? Better to deduct the money yourself (put it somewhere where it will earn some interest) and pay the taxes when they come due.
Yes, it sucks to get a bill when you do your taxes, but bear in mind that you're getting a "bill" everytime your employer deducts income tax from your pay. The folks getting the bill during tax season have the advantage of having been able to use the money for the whole year.
posted by gwenzel at 10:10 AM on April 10, 2006
You don't have to tell TurboTax whether to take your standard deduction or to itemize, it automatically does that for you if your itemized deductions are high enough.
That's not true on the current version; I was just messing with it last night. At one point it asked me if I wanted to take the standard, the itemized OR the higher of the two. It IS possible to choose options such that it will continue to take the inferior one.
posted by phearlez at 10:41 AM on April 10, 2006
That's not true on the current version; I was just messing with it last night. At one point it asked me if I wanted to take the standard, the itemized OR the higher of the two. It IS possible to choose options such that it will continue to take the inferior one.
posted by phearlez at 10:41 AM on April 10, 2006
Okay, now we understand. If we were itemizing deductions our mortgage interest could help us, but since we're not it won't.
Thanks Mefites!
posted by spakto at 10:49 AM on April 10, 2006
Thanks Mefites!
posted by spakto at 10:49 AM on April 10, 2006
Wow, that's... b0rken. Badly.
Anyway, if you owe $500 then yeah, next year you should reduce the number of exemptions on one of y'alls payrolls. (File a new W-4.) Each exemption is worth about $600 so instead of owing $500 next year, you'll get about $100 back. This is not so much money you'll feel guilty about letting the government have an "interest-free loan" for a year and it'll eliminate the hassle of coming up with $500 at tax time.
Of course, it's not really that much of a hassle, you DO have four and a half months to come up with the money, after all; you can easily put together a rough cut of your taxes on January 1 and figure out how much you'll probably owe using the data on your last paychecks of the year.
posted by kindall at 10:51 AM on April 10, 2006
Anyway, if you owe $500 then yeah, next year you should reduce the number of exemptions on one of y'alls payrolls. (File a new W-4.) Each exemption is worth about $600 so instead of owing $500 next year, you'll get about $100 back. This is not so much money you'll feel guilty about letting the government have an "interest-free loan" for a year and it'll eliminate the hassle of coming up with $500 at tax time.
Of course, it's not really that much of a hassle, you DO have four and a half months to come up with the money, after all; you can easily put together a rough cut of your taxes on January 1 and figure out how much you'll probably owe using the data on your last paychecks of the year.
posted by kindall at 10:51 AM on April 10, 2006
you hate it? hate what? paying taxes or having to pay $500 in april?
as other posters have noted, it really makes no sense to increase your withholding unless you are subject to penalties for under-withholding. you can use that $500 to earn interest or invest or whatever, just make sure you have it when you need to pay your taxes.
i guess the extra/over-withholding route makes sense for people who don't want to think about their finances, etc. but it comes at a cost.
posted by joeblough at 1:54 PM on April 10, 2006
as other posters have noted, it really makes no sense to increase your withholding unless you are subject to penalties for under-withholding. you can use that $500 to earn interest or invest or whatever, just make sure you have it when you need to pay your taxes.
i guess the extra/over-withholding route makes sense for people who don't want to think about their finances, etc. but it comes at a cost.
posted by joeblough at 1:54 PM on April 10, 2006
This thread is closed to new comments.
posted by Gungho at 7:58 AM on April 10, 2006