"Where's the logic in deducting interest paid to buy a stock, but not a car?"

Same logic as allowing the purchase/sale commission to reduce the profit - the interest is an expense used to generate (hopefully) a profit in your holding. Buying a car is not a profit-making action.

But, if you are a business and buy a car with a loan, the interest expense IS deductable.

Rob - the tax code is structured to be in line with our capitalist goals.

Why is the interest rate less on long term capital gains than short term capital gains? Because in a capitalist economy, the government wants to rewards those that invest their money in new companies and leave it there for a while to allow new ideas/businesses to prosper.

The "problem" is that the tax code is structured to be more than just a flat tax, it wants to reward certain things (home ownership, charitable donations, long term capital gains) etc.

Hold up, were common people expected to understand the tax code? Wow!

Thanks, Rob. I know you don't get political very often, and when you do, there's a good reason for it.

I was having the same thoughts this weekend, doing a friend's taxes with TaxCut. Thank God I can afford the $70+ dollars all told (Fed, 2 states, eFile), and have a few years' experience under my belt. What about those who don't have the $$, or the home computer, or are doing it the first time? How on earth are they supposed to make sense of this hash?

Rob's column touched on a huge tax peeve of mine: why, in the name of all that's holy, should we have to pay taxes on the previous year's refunds?? The fact that they're *refunds* mean it's money we *overpaid* and had *refunded* to us! After the gov't had use of it for a year! Why on earth should it be treated as income??

Thanks, I feel better now.

I would like to see you do a column on why we are forced to pay a third party if we want to file our federal taxes on line.

Most states and the District of Columbia enable their residents to file their taxes for free on their respective government web sites. Yet, strangely the federal government is way behind the states in this regard. It is impossible to use the IRS web site to file your federal taxes.

Filing a federal tax return is a legal obligation. Electronic filing saves the government a lot of processing costs over paper filing. The IRS should provide this service itself for free, just like the states do.

I agree with Brad 100%. I was trying to eFile taxes for a friend who's under the 50k income limit. The "help" that awaits a taxpayer at irs.gov is a disgrace. The "Guide Me to a Company" link was broken. The "Browse all Companies" link leads to a lengthy list, not even alphabetized, of dozens of companies, most of which I had never heard of (and would not entrust tax information to). Each entry had what amounted to a free marketing blurb for the company. What is this doing on a .gov Web site?

Surely the IRS should select one or two reliable companies through an RFP process, and contract them to create software on the IRS site to compute and file taxes. The free-for-all that exists now on irs.gov is one that any educated consumer would one from, if that consumer had a choice. And as Brad has pointed out, it's not as if we had a choice as to whether we file taxes. If we're compelled by law to do it, then make the freaking software available at no cost.

I have never been able to use a tax prep program. I am fat-cat with about $11.00 in foreign tax credits each year. IRS allows it to be taken, with an explanation, on line 51 of the 1040. Software insists on going through the several tortuous forms to calculate and take this credit. I wish we could have a simple system..."how much did ya make, send us 10%".

Someone commented on the story that "If you have State Farm Insurance, you can access TurboTax through the State Farm website and efile (federal and state) for free." Can this be verified? I can't find any mention of it off of statefarm.com.

I do my 1040 by hand. Takes a couple of hours, but not that difficult. Just save your receipts during the year, and keep them organized.

Want to get some real positive changes to the tax code? Move the election date to April 16th.

I also agree with Brad about having to pay to file - it is, of course, all about creating and expanding the industry of tax preparation. I refuse to pay - I'm mailing mine in. It kills me to pay for the software also. I did it on paper last year and it is easier with the software. So I shell out the $20 for T.Tax!

As long as people will pay, who is going to stop taking the money?

Great column, excellent point. You asked if Clinton, Obama or McCain will do anything about this. Don't hold your breath. Now RON PAUL would have fixed it very nicely by simply abolishing the income tax altogether, and reducing the size and scope of government accordingly (no more foreign wars, no Drug War, privatization of entitlement programs, etc.). The LIBERTARIAN PARTY candidate, yet to be chosen, will offer the same. If you keep voting for the guys who gave us the mess in the first place, don't be surprised if you keep getting the same results.

While, the goverment needs to collect Taxes, the problem is not why there are (excessively) 4 kinds of Capital Gains methods. Rather it's the tax laws that are undecipherable by even CPA's. The US tax system so complicataed that it's impossible to understand the ramification of any personal/corporate tax decison and any negative effect on the other areas of ones tax position. A system that penalizes income (vs. consumption or actual spending of your money) so that over 1 trillion dollars in the underground economey is not taxed. This penalizes and increases taxes for every American. A system foisted and perpetuated on Americans by an irresponsible congress and Executive branch who continue to ignore the above and the 5 Billion hours wasted by Americans each your in planning and preparing their returns. When will this madness stop?

The tax law is complicated for one reason, and one reason only: Members of the House Ways & Means and Senate Finance Committees, along with the rest of Congress, take campaign contributions from those seeking special tax breaks for themselves and their industries. That is why we have multiple depreciation schedules, and that is why salaries and wages are the highest-taxed type of income. Those of us who work for a living, as opposed to speculate in the financial or real estate markets, pay through the nose. Leona Helmsley was right when she said "only little people pay taxes."

How about a pure tax system where all forms of income are taxed at the same rates, and no industry gets special deductions, credits, or exclusions? Nope, K Street will never let that happen. Tax capital gains and investment income at the same rates as ordinary income, as Reagan did for a few years after the Tax Reform Act of 1986? Not while the Paris Hilton lobby has any say. Their economic--make that ParisHiltonomic--models show conclusively that if we tax investment income, the terrorists win.

In the meantime, get used to it. As they say on Wall Street, money talks and BS walks. And the money goes straight to the Members who write the law.

Does anyone know how or why the free filing limit of $54,000 was chosen? The IRS, if it knows, isn't telling (I wrote to ask, they pointed to their web site, which is a compendium of hows, not whys). I have a simple tax situation: I rent, I don't have much in the way of deductions besides DC taxes; yet evidently I am obliged to pay somebody to press a few buttons--the figuring part I can do myself. What's the sense? Doesn't it cost the IRS more to process paper forms than electronic forms? I do everything else electronically, and it costs me nothing. I refuse to pay to file taxes.

GOOD LUCK! Are you crazy? The IRS will have your "head" because you might interupt their money-game.

The lack of free filing on the IRS web site has nothing to DO with the IRS (though they were less than helpful when I wrote them, admittedly): It is your friends (but not mine) in Congress who decided that the IRS is not allowed to provide its own electronic form. Congress won't write me back, because even though I am a taxpayer, I am not a constituent and also I am not a tax preparer (whose butts all this was crafted to spare). What I want to know is what is so magical about $54,000? What kind of goofy compromise is that? I say that if you can figure your own taxes, you ought to be able to file your own taxes. It is amazing to me that the people of the United States (STILL) have so little power in comparison to corporate interests; and I ask again: why $54,000? Doesn't Congress realize that I will not, under any circumstances, pay to file, and that they are losing money every time someone files a paper return?

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