Comments on: Staying On Top of Your Taxes Makes Cents

By: Financial Samurai

Financial Samurai — Thu, 08 Oct 2009 17:11:08 +0000

Hey Mike! Thnx for that link. Sweet. I wish they wouldn’t make things so convuluted. Just like the tax structure. FLAT TAX I say! Why doesn’t every pay an equal share of their income to big brother?

Who’s to say someone making $500,000/yr for example is rich? Living in SF for example is 5X more expensive than living in Wyoming.

Flat Tax = maximum fairness, and I don’t understand how anybody could argue otherwise.

By: Mike Piper

Mike Piper — Thu, 08 Oct 2009 11:44:56 +0000

Table 1 of Publication 590 has the step-by-step calculation for determining how much home mortgage interest is deductible.

The gist of the calculation is:
(qualified loan limit)
divided by
(total of average balance on all mortgages on all qualified homes)
times
(total amount of interest paid)

So yes, the greater the extent to which the mortgage balances exceed the limit, the lower the portion of interest the taxpayer can deduct.

Really, this concept isn’t terribly unique. Congress is simply saying, “if you’re well off enough to have $3 million dollars of mortgage, we don’t want to give you much of a tax break on it.” It’s not too different from “if you make enough money, we don’t want to give you a tax break for contributing to an IRA.”

By: Financial Samurai

Financial Samurai — Thu, 08 Oct 2009 04:25:57 +0000

Hi Mike,

Fair enough. Actually I’ve got a specific question which for some reason I can’t get a straight answer.

The mortgage interest indebtedness limit is $1,000,000 mortgage + $100,000 on a HELOC right? For arguments sake, let’s just say you can only write off interest on up to a $1mil mortgage. Say your interest rate on the $1mil is 6% i.e. $60,000 of mortgage interest you can write off your income. Is it therefore true that even if you had a $2 million dollar mortgage and a hypothetical 2% interest rate for $40,000 in interest, you can only write off half, or $20,000 of the mortgage interest?

I don’t understand how the Turbotax software can tell and cut off how much mortgage interest you can deduct when a big variable is the interest rate. From my example above, the guy with a $2mil mortgage is paying $20,000 LESS in interest but yet can deduct 1/3rd as much compared to the guy with a $1mil mortgage.

thnx!

By: Mike Piper

Mike Piper — Thu, 08 Oct 2009 00:00:44 +0000

Financial Samurai: In terms of preparing the return, I’d say it has far more to do with the complexity of the return than with the size of the numbers on the return.

That said, the greater your income, the more value you’re likely to get from an ongoing relationship with a tax professional. Still, I’m hesitant to give any sort of “magic number.”

By: Financial Samurai

Financial Samurai — Wed, 07 Oct 2009 23:55:34 +0000

Hey Mike – Thanks for your post. Is there a certain income limit, or multiple income stream threshold one should have before your recommend going to a tax advisor instead of just doing it yourself on turbotax or with H&R Block?

If I make $500,000 a year, and have only one income stream and a mortgage, it’s no different from someone making $50,000 a year with a mortgage right?

Curious to know your thoughts on this.

By: Nathanael Yellis

Nathanael Yellis — Wed, 07 Oct 2009 13:51:02 +0000

I highly agree with this post. As a tax preparer with a small firm in New England, my clients prove this idea is valid. The people that are the most savvy and educated about tax issues are the easiest to work with, get billed the lowest, and get the results they want. The folks that decide to be clueless pay more, both to us and to the IRS (generally).

To that end, our firm decided to begin sending tax news and analysis to our clients (as well as publish it online). We think the investment in client education will be worth it for everyone.

Wherever you find tax info, first be sure its solid and then keep up to date on it. Being educated will help you get more from your accountant.

By: Edwin / Cash The Checks

Edwin / Cash The Checks — Wed, 07 Oct 2009 05:29:47 +0000

Sometimes your accountant doesn’t know all your details or your future plans, only you know what’s best for yourself.

By: MoneyNing

MoneyNing — Wed, 07 Oct 2009 00:03:55 +0000

Like you, I have commitments but whenever I run across tax related articles, I stop and read them because of the implications. We all have chores, obligations and tasks that we don’t like doing but it is sometimes really beneficial to do them.

I hate exercising because I think it’s boring and a waste of time. However, I’m starting to do it because it’s healthy for me and the only way that will increase my energy level. Do what’s right for yourself and spend some time getting to know the tax implications of your actions.

By: In the Money

In the Money — Tue, 06 Oct 2009 22:49:35 +0000

Great post and advice. It is critical to begin making adjustments at the beginning of the year. Early tax planning can save you a large amount of money by the end of the year.

By: Mike Piper

Mike Piper — Tue, 06 Oct 2009 21:10:30 +0000

Jeffrey, you’re right that it’s complicated. (I for one would agree that it’s far too complicated.)

But you certainly don’t have to know all of it in order to benefit. Even a little knowledge can save you money.

My suggestion is to read a couple IRS Publications. They’re usually pretty short and quite readable. Read just a few of those and your tax knowledge will be far beyond that of most other citizens.