25 May Myths vs. Truths – The Truth About Tax Deductions

- Exposing the false beliefs of the financial world Myth: You should avoid paying off "good debts" like home mortgages so you can get a bigger deduction on your taxes. Truth: Making any financial decision based solely on the amount of a tax deduction is a really, really bad idea. This is really a matter of simple math. For most of us, taxes take 25 to 30 cents of every dollar we make. So spending money for the sake of a tax deduction means you are willing to spend $100 to save $30 in taxes. So in a practical example, if you have a $100,000 mortgage at 6% interest, you are paying roughly $6,000 per year in interest to the bank to avoid sending $2,000 to the IRS. Where does that make sense? The truth is we are so afraid of paying taxes that we over-rationalize to ourselves until we are convinced that it makes sense to borrow money to save on taxes.
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