FAQs: Taxes

Deductions & Tax Liability

IMPORTANT MESSAGE: We have compiled the list of questions below based on inquiries that we receive. This information is generic in nature regarding tax policy questions and is NOT intended to serve as tax advice. We also cannot provide up-to-date information on any Administration or Congressional proposals that may affect the information shown herein. Any questions regarding specific tax situations or for help in filling out your tax return should be directed to your attorney, accountant or other tax professional, or to the Internal Revenue Service. The IRS will not comment, though, on the legislative merits of current tax law, or on pending Congressional action that may change the tax code. Finally, we make every effort to make certain that the information contained here is accurate, but due to the fluid nature of the legislative process, changes in tax laws may occur that are not reflected here at the time of publication. To the best of our knowledge, this information is accurate.

Why can't I deduct "personal" interest expenses when I purchase a car, or for the interest on my credit cards?

There is much talk about encouraging people to volunteer their time to help organizations that provide community services. Shouldn't people who do volunteer work be provided with a tax deduction to compensate them for their donation?

Why can't I deduct "personal" interest expenses when I purchase a car, or for the interest on my credit cards?

The deduction for personal interest, including interest on charge card purchase of consumer items, was phased out by the Tax Reform Act of 1986. Congress believed that the deduction for personal interest encouraged people to consume and that such consumption was at the cost of savings. At the time, the American savings rate was declining and, unfortunately, the private savings rates continues to remain low. To eliminate the significant disincentive to savings, Congress repealed the itemized deduction for personal interest other than mortgage interest. Legislation by the Congress would be required to reinstate the deduction for personal interest expenses.

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There is much talk about encouraging people to volunteer their time to help organizations that provide community services. Shouldn't people who do volunteer work be provided with a tax deduction to compensate them for their donation?

Under current law, volunteers are prohibited from taking a charitable contribution deduction for the value of the services they provided to charities. However, the tax code does support volunteer work for charitable organizations by allowing volunteers to take a charitable contribution deduction for expenses they incur in connection with their volunteer services, but the expenses must be ones the charity would otherwise have to incur, not personal expenses of the volunteer. For example, volunteers may deduct the cost of materials they donate for use in repairs to a church, supplies they use in leading activities at a day care center, or uniforms they wear when serving as nurses' aides. However, volunteers may not deduct personal expenses such as meals eaten during a break in a local service project, transportation to and from a school where they donate their time, or child care expenses.

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