recharacterizing gain from short-term to long-term increases tax, what to do!

Get to over $100,000 of taxable income so you're forced to the tax rate schedules.

If that isn't feasible, write your members of Congress suggesting that they amend the law to offer the taxpayer the option to use the tax rate schedules at all income levels.

On the other hand, if their income had been $50,051 with the $35 included, your regular tax would drop by $50*marginal rate and the capital gain tax would increase by $14*15%, so you would get a significant saving. Using the granular tax tables tends to magnify some small income differences and ignore others, depending on the luck of whether you cross one of the $50 boundaries. In the case of a $35 check, you have a 70% chance of winning, 30% chance of losing.

I vaguely recall that when I used to do my taxes by hand (about 25 years ago, before Macintax) that you could actually choose whether to use the tax table or calculate the percentage exactly. Am I misremembering? Is this still allowed?

I have the same recollection of back when the earth was cooling. However under current law you must use the Tax Tables if taxable income is less than $100,000..

Too bad.

Anyway, going back to my earlier point about the fact that it's a crap shoot, the likelihood that you'll be screwed by the tax table is inversely proportional to the amount you'll be screwed. If the check had been $1, there's a 98% chance of staying in the same $50 range, but the difference between income and capital gain tax on that $1 would only be about a dime.

Yes, you make a good point. In any case, the $0.10 would be rounded down to $0.

I don't like the idea of choice as it further complicates the tax code and compliance. But in the future, probably all returns will be eFiled, so then they would always use the calculation as the computer would do all the work.

I just remembered, one can elect to treat long term capital gains as short term. Is this true in general, or only for the purpose of increasing the investment interest deduction (ie. maximum allowsable investment interest deduction is the sum of interest, ordinary dividends, short term gains - hope I wrote the rule right).

See lines 18 & 19 of the Qualified Dividends and Capital Gains Worksheet on page 35 of the Form 1040 instructions.

Line 18 asks you to figure the tax on your taxable income without taking into account any special lower rates. Line 19 asks you to choose the lower of line 18 or your tax calculated with the lower tax rate applied.

I see no obstacle to foregoing long term rates in favor of short term rates, but I am not convinced from your example that it is needed here. See my other message on the qualified dividend and capital gain workseet lines 18 and 19.

Line 18 and line 19 are not sufficient to generate the lower tax. Turns out my example is too simplistic; the real scenario has several thousand dollars of qualified dividends and long term gains. Line 18 asks you to compute the tax on your entire taxable income using the tax table. This means that all the qualified dividends and long term gains (several thousand dollars) would be taxed at ordinary income rates, which is roughly 25% in my scenario -- the person's salary alone puts them in the 25% bracket. So I want the 15% rate for these qualified dividends and capital gains. It's just the single capital gain of $35 that I want to be treated as short term. Is it possible by section 163?

I wouldn't use that. I would calculate based on modifying the worksheet in order to not pay any more tax when applying the 15% rate to LT gains and Q.D. and then disclose this recalculation of a few bucks on form