Caution: Watch for deductions

   Every year, as April 15 approaches, I sit down to figure out my taxes and think of the same old joke.
   Doctor: (walking into bank) I need a loan.
   Banker: No problem. I can offer you a loan at, letís see, 8 percent interest.
   Doctor: Eight percent!!! No, no, no, that wonít do.
   Banker: Iím sorry, I canít go any lower than 8 percent.
   Doctor: Lower. Who said anything about lower? Iíve got a huge tax problem and I need deductions. I have to pay at least 10 percent!
  While the joke is not a belly-buster and in fact discriminates against the financial acumen of doctors, it does drive home a point. Namely, some taxpayers have a distorted view of reality.
   Anyone who itemizes their personal tax return knows the value of deductions. The problem is that some of us actually begin to think that an expense is an advantage.
   I know it happens to me every year. Iíll sit down to figure out my taxes and the only time I perk up is when I start adding up the deductions. When I tabulate the amount I spent for interest on my home mortgage, I pump my fist in the air and dance a little jig, knowing the tax bite will be reduced as a result of my wise financial decision to acquire an enormous debt burden.
   Then I ask my wife to gather all the information from her separate checkbook along with some year-end notices from some minor investments she made over the years.
   "Letís see," she says, ever so proudly, "I sold the Raychem stock Iíve been holding for 17 years and made a profit of $500."
   "Nice going," I replied, thinking only of the taxes. "What else?"
   She rattled off the interest on her money-market checking account (taxable), interest on out kidsí college savings account (taxable), a dividend from a mutual fund (taxable) and a few other assorted items (all taxable).
   "My God," I cried, "weíre in huge trouble here. Didnít you do anything stupid in 1992?"
   "Well, there was the flier I took, putting $1,000 in that little biotech company that was on the verge of a cure for the whooping cough."
   "What happened?" I asked, unable to contain my excitement.
   "They went bankrupt," she replied. "I lost every penny."
   "YES!" I shouted, taking her into my arms. "Another deduction! Good going."
   "Always happy to help," she said, pushing me away gingerly.
   I went back to compiling the information for our tax return. "Wait a minute," I said, catching my wife on her way out the door. "What about charitable deductions? What did we give away last year?"
   She sighed and went back to her checkbook. A few minutes later she gave me the figure.
   "Thatís all?" I whined. "Whereís your sense of social responsibility? I canít believe youíre so stingy."
   "Youíre the one who made me return the light bulbs I bought from the American Motorcycle Police Officer Veterans of Foreign Wars Association."
   I sighed.
   "This year Iím making a pledge to be more charitable. We really could have used the deductions."
   While my wifeís charitableness and meager blunderings were of some help to the bottom line, nothing came close to topping the sense of satisfaction I got from my mortgage interest deduction.
   I looked at it again. What a savings! Purchasing a home and putting me and my family on the brink of financial disaster each month was really paying off.
   Who cares if the property actually depreciated a little last year? Through the shrewd financial planning tactic of acquiring debt, I was lowering my income dramatically, thereby reducing my taxes.
   What is lost in this scenario, of course, is that it only makes financial sense to borrow money when the proceeds can generate more income than that which is being paid to service the debt.
   At tax time, though, that thinking tends to go out the window. A deduction becomes a valued commodity, regardless of the extenuating circumstances.
   Take dependent children, for instances. All the struggles, all the headaches, all the expenses last yearĖall forgotten.
   At tax time, for one brief shining moment, deductible kids are king.


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