The Little Book of Main Street Money: 21 Simple Truths that Help Real People Make Real Money

Chapter 17. Saving Taxes Can Cost Us Dearly

But Retirement Accounts Are the Big Exception

It's the taxpayer's lament: If only I had more deductions.

Be careful of what you wish for.

There are all kinds of ways to pad your Schedule A, the federal tax form where you list your itemized deductions. You could give more to charity, pay more in state and local taxes, cough up more mortgage interest, and incur hefty medical expenses.

Giving to charity is a great idea. But what about everything else? Should you really be happy to have more tax deductions?

Pocketing Less

The reality: Racking up a heap of medical expenses and mortgage interest is hardly reason to celebrate. Such deductions are costing you a lot more than they're costing Uncle Sam. If you are in the 28 percent federal income tax bracket, you itemize your deductions and you pay $1 of mortgage interest, you will save 28 cents in taxes—which means the other 72 cents is coming out of your pocket.

In addition, if you hadn't amassed all those money-losing tax deductions, you would still be entitled to the standard deduction. In 2009, the standard deduction is worth $11,400 to folks who are married filing jointly and $5,700 to those who are single. In effect, you are only truly saving taxes with that portion of your itemized deduction that exceeds the standard deduction that you could otherwise have taken.

To make matters worse, if you have a six-figure income, Uncle Sam may reduce your itemized deduction in 2009. If you're subject to the ...