Being an adult can be a scary proposition at first. For instance, the first time you get repayment invoices for your student loans. There is a reason some graduates refer to them as their first child. They can be a financial burden!
Receiving your first student loan repayment invoice in the mail can be a real shocker. Ah, but you have a second whammy coming down the line. Yes, I am talking about the joys of paying taxes now that you have some real income. It can be slightly depressing. Regardless, Uncle Sam is going to help you out.
Aside from all the usual strategies involved with attempting to repay those loans, you must not forget about good old Uncle Sam. You see, your uncle wants to help you with those loans, which is why he has implemented an interesting tax strategy regarding the interest you pay off yearly.
Much like a home mortgage loan interest deduction, the government lets you deduct up to $2,500 in interest paid on your student loan each year. This is a healthy deduction for most college graduates.
This health deduction can lead many graduates to implement an odd financial plan. They decide to make the minimum payments on their loans, so they can claim the deduction for years and years. This works okay so long as you show some discipline with the money saved.
In fact, there are a number of things you should do with that extra money. Buying a plasma television is not one of them. The initial step, instead, is to create an emergency fund that has enough money to cover you for sixteen weeks.
Hide that money away. Now take a look at those credit card bills. Take your credit cards out of your wallet and store them away for emergencies. Now start paying off those cards. Start with the smallest balances and move to the biggest
Once you have taken care of these two things, start pooling and investing your money. Your goal is to build up a big enough investment that you can pay off the loans in one fell swoop. Until then, claim that deduction!
The real estate market has obviously been on steroids for much of this decade. You could borrow money at historically low rates while also seeing property appreciate at unheard of rates. While the market has definitely slowed down in a big way, many people forget they were still active in it in 2006. By this, I mean they were playing with their mortgages in an effort to get the best possible deal.
If you refinanced or obtained a new mortgage, you can deduct the interest paid as everyone knows. Fewer people realize, however they can deduct the points paid in total or at least a portion of them. For some people, this is a huge windfall.
Assume you purchased your first home in January 2006. What a magical moment. Then you started making payments. For many people, the first payment included ?points? on the loan. A point is a fee charged by the lender. One point equals one percent of the loan. If you paid points, you can deduct a percentage of them on your taxes. Assume you have a 30 year loan. You can deduct 1/30th of the points paid each year. Admittedly, that is not a huge number, but things change if you refinanced or paid off an old mortgage.
Assume you purchased a home in 2002 and paid point on the loan. In January of 2006, you refinanced your home. The points you paid on the original loan can now be deducted in full minus any previous deductions you took. For many homeowners, that is a nice round number.
My lord, going to college is getting expensive. Well, the government is going to give you a tax break on such expenses. As long as you didn't earn over $65,000 as a single filer or $130,000 as joint filers, you can deduct as much as $4,000 for higher education expenses. The expenses have to be tied to the education, to wit, tuition and books, etc. Costs associated with joining a fraternity do not count.
Going green with your cars makes tremendous sense for a number of reasons include tax savings. Buying a hybrid used to give you a juicy tax deduction of $2,000 or so. Happily, this is no longer the case. Why do I say happily? Because it has been turned into a tax credit. Tax credits are more power than deductions because they are a reduction of the actual amount of tax you are supposed to pay, not your gross income. Check with the IRS to find out the tax credit for your particular hybrid.
Many people feel tax deductions are slowly being done away with. While many loopholes have been closed, there are still plenty of deductions you can claim to cut your tax bill.
Both David Gibson & Richard A. Chapo are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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