I disagree completely. The mortgage interest deduction is one of the few tax breaks that helps the middle class. Not everyone who itemizes is "rich" - in high cost areas like California or New York, even modest homes can cost $750k+. Taking this away would crush homeowners in those regions.

The data doesn't support that position. About 80% of taxpayers now take the standard deduction after the 2017 tax changes, meaning they get zero benefit from the mortgage interest deduction regardless of whether they're homeowners. The primary beneficiaries are households making over $200k. In high-cost areas, I'd support adjusting the cap based on local median home prices rather than having a flat national cap. But the current system primarily benefits the wealthy while doing very little to expand homeownership rates for middle-income families, which was supposedly its purpose.

Yes! This is so messed up. My neighbor is a doctor who works at a hospital (doesn't qualify for the deduction) but her husband is a lawyer who set up his own practice and gets the full 20% QBI deduction. They make similar incomes but he pays way less in taxes. Makes no sense.

What exactly is the carried interest loophole? I hear about it but don't really understand how it works or why it's such a big deal.

Carried interest is basically the share of profits that hedge fund and private equity managers get as compensation for managing investments. Instead of being taxed as ordinary income (which can be up to 37%), it's taxed at the capital gains rate (usually 20%). So imagine a fund manager who makes $10 million from managing other people's money. Instead of paying $3.7 million in taxes like other high-earning professionals would, they might only pay $2 million. That's a $1.7 million tax break just because of how their compensation is classified! Meanwhile teachers, doctors, and engineers all pay the higher ordinary income rates on their earnings.

That would totally screw over people in high cost of living areas though. $500k won't even buy you a 1 bedroom condo in San Francisco or NYC. Not everyone with a mortgage over $500k is wealthy - many are middle class families in expensive metro areas.

Good point! I got hit with a penalty last year because I didn't realize this. Is there any kind of safe harbor rule that helps avoid the penalty even if you owe a lot?

That sounds like a lot of extra steps... is it really worth the hassle just to get a tax deduction? Wouldn't you lose money on the resale compared to just donating the rewards directly?

You're absolutely right that it involves extra steps and might not be worth it for smaller amounts. You'd definitely lose some value in the resale process - typically 10-30% depending on what you're selling and where. I only recommend this approach if you're someone who itemizes deductions and is close to the standard deduction threshold. In that specific case, pushing yourself over the threshold with legitimate deductions might save you more in taxes than the value lost in the conversion process. For most people though, direct donation of the rewards cards is simpler and still does good, even without the tax benefit.

Thanks for pointing that out! I was about to use my Verizon points for exactly this purpose. Do you know if there's a way to donate the rewards directly to a charity instead of going through CharityChoice to avoid the admin fee?

I don't believe Verizon offers a direct donation option unfortunately. However, if you have a charity you specifically want to support, you might consider redeeming for regular gift cards that the charity needs (like office supply store cards, etc.) and donating those directly. That way 100% goes to the charity. Just call the charity first to check if they accept gift cards as donations. Many do for operational expenses, but policies vary. And remember, you'd still face the same tax deduction limitations we've been discussing.

That's actually a really good point I hadn't thought about. I did fill out a new W-4 when our company changed payroll providers last March. I should check my recent paystubs to see if the withholding amounts look right. Do you know if there's an easy way to calculate what my proper withholding should be?

The IRS has a Tax Withholding Estimator tool on their website that's pretty helpful. You enter your income, filing status, dependents, and some other basic info, and it tells you how to fill out your W-4 for the right amount of withholding. If you find that your employer made an error in processing your W-4, definitely talk to your payroll department right away to fix it for this year. Unfortunately, that won't help with what you owe for 2024, but at least you won't have the same problem next year.

That makes sense about refunds just being your own money. I guess I've always used tax refunds as a forced savings plan, so it was a shock to owe instead. How do you figure out how much to pay for quarterly estimated taxes? Is there a simple formula or percentage I should follow for freelance work?

For quarterly estimated taxes, a safe harbor approach is to pay either 100% of last year's tax liability (110% if your income is over $150,000) or 90% of your current year's anticipated liability, whichever is less. This helps you avoid underpayment penalties even if your income fluctuates. For freelance work specifically, a rough calculation is to set aside about 30% of your net profit for taxes - this covers both income tax and self-employment tax. The actual amount varies based on your total income, filing status, deductions, etc. The IRS Form 1040-ES includes worksheets to help calculate the exact amount, or you can use tax planning software to get more precise figures.