by Ryan McKeown, CPA, CFP®, Vice-President Financial Advisor, Wealth Enhancement Group

It is tax time again. Time to gather all of your documents and figure out if you are in line for a big refund or if Uncle Sam is going to take a bite out of your checkbook come April 15th. Whether you get a refund or have to pay in, your tax return is the one document that shows the most complete picture of your current financial situation.
 
The one area we will focus on in this article is called “itemized deductions.” These would include items such as mortgage interest, medical expenses, charitable contributions, state income taxes, and property taxes. There are quite a few more, although those are the most common. A lot of people think that the more deductions you have, the better. That may be true for your income taxes, but not necessarily for your personal financial situation.
 
When I review a client’s tax return and find they have a large deduction for mortgage interest that is an indication that they also have a large mortgage, which may not be practical for the income they earn. Large deductions for property taxes or state income taxes indicate you are paying too much property and state income tax!  The same goes for medical expenses. No one should want more medical expenses, despite the tax deduction. That would mean your health is questionable and you are paying too many medical bills.
 
Charitable deductions are a little bit different. You are actually giving your funds to charities of your choosing to provide benefits to our society.
 
In summary, the next time someone brags to you about getting a big deduction on their taxes for their mortgage interest, remember that they are getting that deduction because their mortgage is also larger as well. They also only save a portion of what they paid in interest on their tax return. More tax deductions don’t always add up to a healthy financial situation.