Because we live in a credit-based economy, it makes sense that there are tax deductions for interest paid on different loans and credit lines. However, many taxpayers are unaware of these tax savings options. They end up losing hard-earned income to interest from loans or using available credit, and then lose more to higher tax payments because they failed to make accrued interest tax deductions.

Some of these loan, credit and interest deductions include:

• Student Loans: The interest from your student loan may be deductible, even if you do not itemize your deductions. There may be some qualifiers and original loan amount limitations, but you may be able to continue to reap the rewards of educating yourself even when you're out of school and paying back your loans by using this deduction.

Keep in mind that current tuition, fees, and expenses related to education are also tax deductible, and may lower businesses tax liability if the education you are pursuing helps you in your current business. Please see “Other Tax Savings for Small Businesses” for more information.

• Mortgage: The interest paid on a mortgage is deductible on your personal taxes. Often, it is large enough to surpass the standard deduction and opens the door to other tax deductions, including homeowner-related expenses like qualified real estate taxes or large personal property taxes.

• Loan Points: Although most people are aware of the mortgage interest deduction on a home loan, the points you pay on a loan related to a new purchase are also deductible from your taxes immediately. However, points accrued for refinancing an existing debt load still provide a deduction over the life of the loan.

• Credit Cards: Many people make the mistake of thinking that they can’t take the business or personal expense deduction because it was charged to a credit card that was not paid until after the tax year. However, as long as it is a qualified expense, save the receipt and make sure you deduct it from that year’s taxes.

You should always consult a tax professional for more details about the tax deductions and tax savings strategies you can take advantage of personally or in business. After all, professional services are also tax deductible; see “Equipment, Expenses, and Professionals for Hire: More Small Business Tax Savings” for more tax-reducing deductions that may also work if you are an employee.


References:

Electroniccampus.org. Student Loan Interest Deduction.

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