How my Mazda 3 may end up costing me $79,000

[kphoger]

There's definitely truth to the idea of the loan holding you back.  I have a student loan that amounts to $315/month (though I actually pay $400/month since I don't want to wait eight more years to get rid of what amounts to my biggest single expense after rent).  Because of that loan, I was not able to afford to buy my car outright and was forced to lease it instead (which is quite inconvenient; I'm sick and tired of tracking my mileage).  Next year, when I would have had a car loan paid off, I'll instead be spending a large chunk of my savings (which is supposed to act as my emergency fund, which also isn't growing as fast as it could because of my student loan payments) as a down payment on another loan to buy out my car lease.  I'm also living in constant fear of increases in rent and health costs (and with a 50% hike in premiums and copays rumored for the next union contract, I'm definitely worried; Cuomo will NOT back down).  Hard to save as much for retirement as I should too; hope NY's pension plan doesn't get taken away at any point in the next 40 years!

We are still paying off student loans from one semester of college my wife took in 2000.  Having just blown a red light and T-boned a vehicle yesterday morning, I am now facing a distinct possibility that my insurance company will consider the front end damage a total loss and will offer to trade it for a "comparable" vehicle, which is certainly not going to fit my criteria for "comparable."  I hunted for the model I bought and drove to Tennessee to buy it.  At any rate, we'll need to pay the deductible, my traffic ticket, a likely higher monthly insurance rate, and then start planning for eventually trading in whatever car we end up with for what we actually need/want.  Without having to make student loan payments every month, we would have a large security net in the bank to cover all this.  As it is, we do not.  And it's a loan to pay off something that does us zero good.  My wife has no title to show for the classes she took; all they did is make us have to pay more money.

I was fortunate enough to have 80% of my tuition paid for in grants and scholarships.  I slacked off in college and flunked out, but at least I didn't incur debt in the process.  I did eventually crawl my way part-time through community college, but the Associates degree I ended up with is not worth anything more than a high school diploma in the real world.

[kkt]

Let's put it this way: I had never heard of deductions other than the standard one and itemizing until this thread, and my personal finance/careers elective in high school didn't cover any forms other than 1040EZ and the NY state return in depth.  I do my own taxes, on my own with the free fillable forms, since I believe that it is morally repugnant that someone should have to pay a tax preparer or for tax software for something that shouldn't be nearly as complicated as it is (most of the complications arising from the tax preparation industry lobbying congress to keep things complex and ban the IRS from making their own software, which is why the documentation and calculation capabilities of free fillable forms is atrocious).  I try to keep everything as simple as possible.

You're right, unfortunately I have to pay taxes in this world where at some point the money saved in using a preparer who knows what she's doing is too much to ignore.

[Duke87]

Let's put it this way: I had never heard of deductions other than the standard one and itemizing until this thread, and my personal finance/careers elective in high school didn't cover any forms other than 1040EZ and the NY state return in depth.  I do my own taxes, on my own with the free fillable forms, since I believe that it is morally repugnant that someone should have to pay a tax preparer or for tax software for something that shouldn't be nearly as complicated as it is (most of the complications arising from the tax preparation industry lobbying congress to keep things complex and ban the IRS from making their own software, which is why the documentation and calculation capabilities of free fillable forms is atrocious).  I try to keep everything as simple as possible.

Assuming your finances themselves have not gotten more complicated, filing a 1040A or 1040 won't take too much longer than a 1040EZ - you'll just end up writing "0" on most of the extra lines. That student loan interest credit will be worth it.

[1995hoo]

If your only deduction is the student loan interest, the 1040A ought to be pretty simple for you. Your lender should send you a form each year stating the interest you paid. Just read the 1040A directions as to the limitation on how much interest you can deduct since there is a cap. If you stick with the EZ, you're giving away money.

Regarding tax software....since I itemize, the way I see it is that the cost of the software is far outweighed by the benefit of ensuring I get the deductions correct. (State and local taxes can be deducted on the federal return. So between mortgage interest, state income tax, real estate tax, and car tax, it's very easy to see the benefit.) Since you don't own real estate, your situation obviously differs. BTW....if you have enough miscellaneous deductions (we don't), the tax software or accountant expense is also deductible. It's tough for most people to qualify for that.

[jeffandnicole]

Eh, I'm unionized.  Pretty sure my dues don't add up to 2% of my gross. 

Not sure where this whole idea of writing off interest on taxes came from.  No amount of tax deductions will equal or surpass the total amount of money you're paying in interest.  Plus it's generally best to just take the standard deduction anyways.  Unless you have a ton of deductions, itemizing them just leads to headaches, a larger tax bill, and a random chance of an audit.

I'm pretty sure that you're permitted to take a deduction for student loan interest when calculating your adjusted gross income regardless of whether you're itemizing or taking a standard deduction.

i.e. you can take both the standard deduction AND a student loan interest deduction. The standard deduction only replaces itemized deductions which are listed on schedule A, not those which are listed on lines 23-35 on your 1040.

Which is probably why I've never seen it... I use 1040EZ instead of 1040 or 1040A.  On the plus side, it only takes me 30 minutes combined to do my federal and state income taxes (not including time spent waiting for the IRS to accept my federal return before I start the state return) (also, the fact that the online system for federal doesn't even do simple things like look up your tax amount, unlike the state system, which consists of entering in some boxes from my federal return and my W2 and checking a few boxes; the rest is automatic).

O.o

I'm really surprised you aren't using at least a 1040A.

I also don't believe union dues exceed 2% of my gross and other expenses are reimbursed, thus making them ineligible for deduction, of course.

Let's put it this way: I had never heard of deductions other than the standard one and itemizing until this thread, and my personal finance/careers elective in high school didn't cover any forms other than 1040EZ and the NY state return in depth.  I do my own taxes, on my own with the free fillable forms, since I believe that it is morally repugnant that someone should have to pay a tax preparer or for tax software for something that shouldn't be nearly as complicated as it is (most of the complications arising from the tax preparation industry lobbying congress to keep things complex and ban the IRS from making their own software, which is why the documentation and calculation capabilities of free fillable forms is atrocious).  I try to keep everything as simple as possible.

One of the big problems with high schools (and this has been going on well before Common Core and other standardized testing) is that they don't really prepare you for everyday life.  They'll love to have you figure out what A=B+C² for years on end, but in the end 1+1=2 & 3-2=1 is really what you need to know.

I'm surprised they even taught you the 1040EZ, honestly.  I don't think I was taught that in my school.  We had a finance class, along with DECA, but I don't remember taxes being part of that.

I'm an accountant in my day-to-day life.   And I absolutely hate taxes.  I don't do my own taxes.  There's just too many tax law changes to worry about every year.  I can give my stuff to my tax preparer, and in a half hour have everything kicked back to me, completed.  If I have any questions, she has the answers.  If I need advice, she had the advice. 

While I don't know your entire situation, chances are you will do well with a 1040A.  And your stuff should be simple enough that it's worth a visit to H&R Block.  Sometimes, they advertise that if you come in to get your taxes done, you can bring in previous year's tax returns to look them over for free.  If you haven't been deducting that student interest loan you've been paying, that's the perfect time to do that.  You can go back 3 years.  So, next spring when you get your 2016 taxes done, have them review your 2013, 14 & 15 tax stuff (I'm not sure if 2013 will be accepted, but 2014 & 15 definitely will be).  If you bring in supporting documentation showing you didn't claim your interest, they can file an amended return to get your money back.  I know you mentioned the worry about audits.  Don't.  While it's true that filing an amended return can raise some eyebrows, your return is simple enough that it's very clear why you're refilling.  Like I said, the IRS is already aware of the interest you are due back, because the loan company probably submitted that as part of their records to the IRS.  The IRS is simply waiting for you to tell them you want your deduction.  It'll be nice if they gave that back to you up front, but that'll never happen!.  Those that are filing amended returns because they suddenly found another $10,000 in business receipts for golf outings are the people that need to worry about audits!

[Rothman]

Eh, I'm unionized.  Pretty sure my dues don't add up to 2% of my gross. 

Not sure where this whole idea of writing off interest on taxes came from.  No amount of tax deductions will equal or surpass the total amount of money you're paying in interest.  Plus it's generally best to just take the standard deduction anyways.  Unless you have a ton of deductions, itemizing them just leads to headaches, a larger tax bill, and a random chance of an audit.

I'm pretty sure that you're permitted to take a deduction for student loan interest when calculating your adjusted gross income regardless of whether you're itemizing or taking a standard deduction.

i.e. you can take both the standard deduction AND a student loan interest deduction. The standard deduction only replaces itemized deductions which are listed on schedule A, not those which are listed on lines 23-35 on your 1040.

Which is probably why I've never seen it... I use 1040EZ instead of 1040 or 1040A.  On the plus side, it only takes me 30 minutes combined to do my federal and state income taxes (not including time spent waiting for the IRS to accept my federal return before I start the state return) (also, the fact that the online system for federal doesn't even do simple things like look up your tax amount, unlike the state system, which consists of entering in some boxes from my federal return and my W2 and checking a few boxes; the rest is automatic).

O.o

I'm really surprised you aren't using at least a 1040A.

I also don't believe union dues exceed 2% of my gross and other expenses are reimbursed, thus making them ineligible for deduction, of course.

Let's put it this way: I had never heard of deductions other than the standard one and itemizing until this thread, and my personal finance/careers elective in high school didn't cover any forms other than 1040EZ and the NY state return in depth.  I do my own taxes, on my own with the free fillable forms, since I believe that it is morally repugnant that someone should have to pay a tax preparer or for tax software for something that shouldn't be nearly as complicated as it is (most of the complications arising from the tax preparation industry lobbying congress to keep things complex and ban the IRS from making their own software, which is why the documentation and calculation capabilities of free fillable forms is atrocious).  I try to keep everything as simple as possible.

Depending on the deductions that you're eligible for, the price you're paying for simplicity and principle may be quite considerable.

For example, because I have a mortgage, I'm eligible to deduct the interest I pay on it.  I also make significant charity donations.  If I took the standard deduction, I'd be paying literally thousands of dollars more in taxes that I'm not legally bound to do so.   

Totally understand why one would hate to pay to fulfill a legal obligation like taxes, but the reality is that the tens of dollars spent on even some basic tax prep software can save you hundreds or even thousands...not to sound too much like a shill.

[vdeane]

Eh, I'm unionized.  Pretty sure my dues don't add up to 2% of my gross. 

Not sure where this whole idea of writing off interest on taxes came from.  No amount of tax deductions will equal or surpass the total amount of money you're paying in interest.  Plus it's generally best to just take the standard deduction anyways.  Unless you have a ton of deductions, itemizing them just leads to headaches, a larger tax bill, and a random chance of an audit.

I'm pretty sure that you're permitted to take a deduction for student loan interest when calculating your adjusted gross income regardless of whether you're itemizing or taking a standard deduction.

i.e. you can take both the standard deduction AND a student loan interest deduction. The standard deduction only replaces itemized deductions which are listed on schedule A, not those which are listed on lines 23-35 on your 1040.

Which is probably why I've never seen it... I use 1040EZ instead of 1040 or 1040A.  On the plus side, it only takes me 30 minutes combined to do my federal and state income taxes (not including time spent waiting for the IRS to accept my federal return before I start the state return) (also, the fact that the online system for federal doesn't even do simple things like look up your tax amount, unlike the state system, which consists of entering in some boxes from my federal return and my W2 and checking a few boxes; the rest is automatic).

O.o

I'm really surprised you aren't using at least a 1040A.

I also don't believe union dues exceed 2% of my gross and other expenses are reimbursed, thus making them ineligible for deduction, of course.

Let's put it this way: I had never heard of deductions other than the standard one and itemizing until this thread, and my personal finance/careers elective in high school didn't cover any forms other than 1040EZ and the NY state return in depth.  I do my own taxes, on my own with the free fillable forms, since I believe that it is morally repugnant that someone should have to pay a tax preparer or for tax software for something that shouldn't be nearly as complicated as it is (most of the complications arising from the tax preparation industry lobbying congress to keep things complex and ban the IRS from making their own software, which is why the documentation and calculation capabilities of free fillable forms is atrocious).  I try to keep everything as simple as possible.

One of the big problems with high schools (and this has been going on well before Common Core and other standardized testing) is that they don't really prepare you for everyday life.  They'll love to have you figure out what A=B+C² for years on end, but in the end 1+1=2 & 3-2=1 is really what you need to know.

I'm surprised they even taught you the 1040EZ, honestly.  I don't think I was taught that in my school.  We had a finance class, along with DECA, but I don't remember taxes being part of that.

I'm an accountant in my day-to-day life.   And I absolutely hate taxes.  I don't do my own taxes.  There's just too many tax law changes to worry about every year.  I can give my stuff to my tax preparer, and in a half hour have everything kicked back to me, completed.  If I have any questions, she has the answers.  If I need advice, she had the advice. 

While I don't know your entire situation, chances are you will do well with a 1040A.  And your stuff should be simple enough that it's worth a visit to H&R Block.  Sometimes, they advertise that if you come in to get your taxes done, you can bring in previous year's tax returns to look them over for free.  If you haven't been deducting that student interest loan you've been paying, that's the perfect time to do that.  You can go back 3 years.  So, next spring when you get your 2016 taxes done, have them review your 2013, 14 & 15 tax stuff (I'm not sure if 2013 will be accepted, but 2014 & 15 definitely will be).  If you bring in supporting documentation showing you didn't claim your interest, they can file an amended return to get your money back.  I know you mentioned the worry about audits.  Don't.  While it's true that filing an amended return can raise some eyebrows, your return is simple enough that it's very clear why you're refilling.  Like I said, the IRS is already aware of the interest you are due back, because the loan company probably submitted that as part of their records to the IRS.  The IRS is simply waiting for you to tell them you want your deduction.  It'll be nice if they gave that back to you up front, but that'll never happen!.  Those that are filing amended returns because they suddenly found another $10,000 in business receipts for golf outings are the people that need to worry about audits!

I don't think I paid enough interest to qualify in 2013, since my loans were in grace up until November/December.  2014 and 2015 would qualify (2015 is actually above the maximum, and I remember 2014 being a huge pain due to the health insurance mandate and me being unemployed much of the year).  Trouble is, one can't re-file electronically, I have no idea how complicated a 1040X is (probably very), and I hate paper records.

Wish I had known about this sooner.

Incidentally, I run Linux exclusively, so no tax software for me even if I was interested in paying for it.  In any case, it really stings that taxes can't be as simple here in the US as they are in the rest of the developed world.  Why can't this country have nice things?

[1995hoo]

It's not a question of whether you have enough interest to "qualify"; it's more a question of whether you have enough in a given year to make it worth going back to amend. Student loan interest is what's sometimes called an "above-the-line deduction." (If you look at the 1040A, you'll see it goes on the front side of the form, while most other deductions go on the back.) Unlike the standard deduction or the itemized deductions, the student loan deduction is subtracted from your total income prior to determination of the adjusted gross income. There are various itemized deductions, such as medical expenses and the miscellaneous deductions I noted earlier, that you cannot take unless the deduction's amount exceeds a certain percentage of your adjusted gross income (I think for medical expenses it's 10% under current law). That requirement prevents a lot of people from claiming these deductions. The student loan interest deduction doesn't work that way. Even if you only pay, say, $150, you could still claim it. The student loan deduction is instead subject to two caps. You can only deduct up to a certain amount of interest per year (I think it's somewhere between $2,500 and $3,000, but I'm not positive) regardless of how much you paid, and once your gross income exceeds a certain dollar amount (I think it used to be $65,000; not sure what it is now) the amount of your deduction is gradually phased out so you only get a partial deduction, and then if you make more than a certain amount (I don't remember the number, but it's more than $100,000 and less than $175,000) you can't take this deduction. These are the sorts of things for which tax software is extremely helpful because the software will be able to determine for you whether you can take the deduction and, if so, how much you can take (recognizing your comment about Linux).

As I say, the real question if you had a very small amount of interest paid in a given year is whether going back and amending your return would reduce your adjusted gross income by enough to make it worth the trouble. That's something you'd have to work out on your own. But going forward, there's no reason not to claim the deduction, no matter how small it may be. It's not the sort of deduction that's likely to trigger an audit.

BTW–your lender only has to send you a statement if you pay more than $600 of interest, but you can still deduct it if you paid less than that amount. You'd just have to figure out the amount, typically either by logging into your online account or looking at your monthly statements and adding it up.

[jeffandnicole]

Here's 1040X: https://www.irs.gov/pub/irs-pdf/f1040x.pdf .  Here's the instructions: https://www.irs.gov/pub/irs-pdf/i1040x.pdf

If this is too much to understand, give a tax preparation office a call.  While it's a relatively slow time for them, they are doing stuff all the time.  Right now, many offices are busy doing required audits of businesses with fiscal years ending June 30th.  Also, those that filed for extensions (ironically, many CPAs do that because they're busy taking care of everyone else's tax returns) need to submit their forms by October 15.

If you filed on time and received a refund, since the time limit for filing an extension is 3 years from the due date, it doesn't matter if you file an amended 2014/15 1040X return today or early in April.  So, don't worry about it right now.  In January when you get your documents for this year, take a look at the updated 1040A for 2016, and compute your taxes with and without the Student Loan Interest.  If you see a significant difference in what your refund (or payment) will be, it may not hurt to go back and see what the difference will be for 2014 & 2015.

If there's any CPA or tax friends up in your office, talk to them as well. I'm sure they'll give you a little free tax advice. 

(Is this the time for the disclaimer that you should seek a qualified tax professional...LOL)

[vdeane]

Would have thought it would have been more complicated.  Isn't a base 1040 a zillion pages long or something?

Unlike the standard deduction or the itemized deductions, the student loan deduction is subtracted from your total income prior to determination of the adjusted gross income.

OK, so that's a potential complication... my NY income tax is computed from the federal adjusted gross income, so refiling 2014 and 2015 would cascade down to my state taxes.

[1995hoo]

The 1040 itself doesn't have a lot of pages. It's a two-page form. But most people who file it also file various supporting schedules and it's those that make it lengthy.

[kkt]

The 1040 itself doesn't have a lot of pages. It's a two-page form. But most people who file it also file various supporting schedules and it's those that make it lengthy.

Right, it's a 2-page form, with 500,000 pages of instructions