Monday, March 11, 2013

Welcome to the Real World: Introduction to the US Tax Code

I've been an adult for quite a while now (10 years or so), but I only recently started paying attention to things like taxes and personal finance. It is a steep learning curve.

Yes, Chandler, really. Via.
Today I discovered something new about student loan interest deductions. This whole year I have been thinking "Great! The more interest I pay on my student loans the less I'll owe the tax man!" WRONG. When I received my completed tax form from my accountant (yep, not comfortable with doing my own taxes yet), I discovered that he only put down $2,500 as the total amount of student loan interest paid. I double checked my 1098-E forms and saw that I had paid a total of $3,400 in interest on my student loans in 2012. I expected to see that reflected in my filing form.

NOPE. A little googling led me to the IRS site that explains you can only take a maximum of $2,500 in deductions for student loan interest during any given tax year. Seriously? Grrr. I've been paying more on my loans in the hope of getting rid of my debt only to find out that the tax benefit has its limits. I wouldn't change my approach, however. I still want that debt gone. It just sucks a bit that I don't get more of a benefit.

Lesson learned for next year: don't expect a bigger deduction than $2,500 for student loan interest.

In other tax news, I owe the federal government $132, but the District of Columbia owes me $103. So net loss this tax season = $29. Not bad! Quite the change from the past few years where I have received $500-1,000 back from the IRS. But hey, at least this year I didn't let them have any of my money interest-free!

1 comment:

  1. One clarification, my net taxes this year was NOT $29. More like $9,000 paid in taxes. But I only had to pay $29 when tax season rolled around, hence my relief that I didn't all of a sudden owe a bunch of money to the IRS.