A Taxing Proposition

Every year around this time, the Internal Revenue Service (motto: “Pickpocketing you since 1913”) gets our spring off to a joyful start by extorting a portion of our income so that Uncle Sam will have enough money to fund programs that don’t work and build roads to homes that we can’t afford.

Now, before you get all down on the IRS, let us not forget that they give us a tax credit of $2,000 for each child, which they believe will offset a year’s worth of child expenses, which just goes to show that IRS employees don’t have children. At least not any legitimate ones.

If you go to the IRS website, you’ll find plenty of simple, easy-to-use forms that make paying taxes a cheerful experience. Why, just look at this partial list of easily understandable forms:

Form 706GS(D-1) – Notification of Distribution from a Generation-Skipping Trust

Form 976 – Claim for Deficiency Dividends Deductions by a Personal Holding Company, Regulated Investment Company, or Real Estate Investment Trust

Form 8817 – Allocation of Patronage and Nonpatronage Income and Deductions

Form 8865 (Schedule K-1) – Partner’s Share of Income, Credits, Deductions, etc.

Form 3621-A – Computation of Net Operating Loss Deduction for Intervening Years Modifications

This got me thinking: is tax filing required? I consulted tax lawyer Manny Mustaykz, a member of the Association of Lawyers Who Place Large Ads in Phone Books, and he told me that filing a tax return is not necessary, as long as you don’t mind going to jail.

Sources say that the best form of tax write-off is a mortgage. This is why my friends were less than enthusiastic when I paid off my house. According to them, I made a huge financial mistake. “Without a mortgage, you have no tax write-off,” they told me, in the same tone of voice they would use to tell a 4-year-old not to poop in the yard.

The idea that you will save money by paying a mortgage is ridiculous, and I will illustrate with an example. If you’re not good at math, don’t worry – I am writing this slowly so everyone will be able to understand.

A mortgage consists of principal (the part that goes toward paying for the house) and interest (a fee that mortgage bankers charge and which they richly deserve because they are such nice, caring people). You can deduct the interest (but not the principal) from your adjusted gross income by listing it in IRS form Schedule A. However – and this is where it gets tricky, so please pay attention – the amount you get back is only a fraction of the interest. What fraction? The percentage of income that you pay in federal and state taxes.

Let’s say you pay 22% in federal income tax and 7% in state income tax (for a total of 29%), and your mortgage interest last year was $20,000. Your tax savings would be 29% of $20,000, which is $5,800. Net loss: $14,200. But none of my friends seem to be able to grasp this, so I can only conclude that they – and I say this with the utmost love and respect – have the IQ of toe cheese.

Oh, and you get that deduction only if you itemize! If you use the standard deduction (which most of us do), you don’t get to write off any of your mortgage interest! Now, if any of you still think that paying a mortgage has tax advantages, please email me and I will send you the number of my shrink.

OK, put the torches and pitchforks down. I’m not saying that I’m smarter than you. I openly admit to being clueless about a few things, such as tact, dating, fashion, manners, discretion, couth … OK, it’s more than a few things. So I’ll cut you some slack for being unable to do basic math. I only wish people would cut me the same slack when I tell my date that our waitress is cute.