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Showing posts from 2011

Your Mortgage Interest Deduction Isn't as Great a Tax Savings as "They" Claim

I will pay $4,320 in mortgage interest this year.  And it will only save me $60 in Taxes. The tax savings touted for mortgage interest is a terrible myth -- one of those that also convinces us it's okay to buy bigger houses and helped get us into this housing mess. Yet financial gurus like Ric Edelman in his latest book  "The Truth About Money," try to mitigate the pain of paying mortgage interest each year by saying "oh, you really aren't paying all that much interest -- because you are saving 25% of it in taxes, if you are in the 25% bracket and itemizing on schedule A."   In real life, this is ot necessarily true and certainly not true for a lot of single people !  You must do at least a simple analysis (see example below) before you really know.   I used Quicken and the IRS tables for back-up and checking.  You can do the same in about an hour and if you don't have Quicken, the IRS 2011 tax tables will do. Even if you file as a single per

Mint Wins with the Envelopes Method

Hallelujah!  Mint.com has edged out Quicken with a new budgeting development in the software -- the ability to track expenses a la the Envelope method.  I'm freed from the Quicken annual subscription fee shackles ...and you could be too! I've been comparing Quicken and Mint for some time and reporting about it on this blog.  Just recently I noticed a Mint upgrade that promised to "roll over" a monthly budget category, so I tested it for the month of May, 2011.   As you may know, the Envelope budgeting method, espoused by Dave Ramsey and all manner of other financial gurus, is really pretty sweet.  What doesn't get used in one envelope (or category), can be shifted to another.  What isn't used in one month in your category (i.e., groceries), can be rolled over to the next month. In my May 2011 grocery budget, for example, I underestimated my monthly $200 alotment by $8.  (Maybe it was all those coupons I used!).   In any case, those $8 are now sitting i

Why I Don't Want to Pay Off My Mortgage

When I downsized into 1200 square feet from 2500 by selling my home, a lot of new questions popped up.  Rent vs. Buy my next living space? If buy, then how much mortgage?  How much down payment? How many years to pay off the mortgage? I did rent for a while, then I bought, so that answered one of the burning issues.  (And I saved money renting!)   Now I'm working toward financial freedom and keep fighting the urge to pay off my mortgage.   Reasons to pay off: Great peace of mind (no mortgage payment - yeah! Sense of accomplishment Pride of ownership Hmmm....wait a minute...these are mostly emotional reasons, aren't they?  Then I began reading Ric Edelman's best-seller " The Truth About Money."    He cites 11 great reasons to carry a big ole' mortgage.  What??  At least two of the elevent reasons have to do with tax benefit -- which I disagree with.  Figure your interest payment each month ($350*12 for me = $4,200).  My mortgage tax deduction doesn

Taxes and Medical Expenses

Considering how much I paid out in dental bills last year (two root canals!), I'm hoping that I can deduct at least some of my medical bills.    Here's a first pass look at whether or not it's worth dragging out all those receipts.  1)  I can deduct anything above 7.5% of my AGI.  Last year's AGI hovered around $50,000 -- so I'll only be able to deduct expenses above $3,500 or so...probably closer to $4,000, since I got a raise last year.  So...2) Expenses paid out of my Flexible Savings Account for Health costs = $100 * 26.....Wait a minute...Nope!  Page 142 of IRS publication 17 points out that I can't deduct these costs because I paid for them with contributions made on a pre-tax basis.  I guess the same thing goes for my health insurance premiums and my dental insurance premiums, since I pay for them on a pre-tax basis as well.   Note:  If the amount is listed in Box 1of your Form W-2, you might want to ask your employer if the premiums were deducted p