Tax season: When you should hire a pro

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A lot of folks looking to save a few bucks do their own taxes. As long as you do them right, there should be no problems. But some might be tempted to follow last year's tax return to prepare this year's forms. I don't recommend doing this because you might miss picking up on changes in your tax situation from one year to the next.

If you do your own taxes and you have any doubt about what you are doing, consider finding and hiring a tax professional to look over your tax forms to get their opinion on whether you prepared your return correctly and if you are using all of the forms you might need to file.

And if you've found a few errors on your self-prepared tax return, then consider using a service such as H&R Blocks Second Look. For a modest fee, they'll offer to review your 2010, 2009 and 2008 tax returns, regardless of who prepared them, for accuracy and to ensure you have claimed all eligible credits and deductions. Their fee for this service is typically $29 per return and it just might be worth it. They claim to have found errors that resulted in tax savings on 2 out of 3 returns.

Here are a few other situations where getting the help of a professional tax preparer is strongly recommended:

Short Sale: If you sold a home in a transaction where the lender allowed you to sell the home for less than the mortgage and cancel the remainder of the debt, then you will need to report this as a short sale. A temporary tax law effective for short sales through 2012 lets these folks avoid reporting the amount of the debt that was cancelled as income. A tax pro can help to ensure you report this properly.

Rental Income: Many homeowners who can't sell their homes have turned to renting out their house, with hope of waiting out the decline in home prices and selling later when the market improves. If you've received rental income you'll need to report rental income and related expenses on a Schedule E form, Supplemental Income or Loss (from rental real estate, etc). The rules for rental property deductions are complicated, especially when you lived in the house part of the year and rented it out for the remainder. Some expenses must be apportioned over the rental period and other expenses should be classified as either repairs or capital improvements, which affects how and when they can be deducted.

Self Employed Income: If you're self employed, there are a lot of tax deductions and complicated tax issues to consider. While you can deduct business-related expenses, this is an area that a lot of people are likely to go too far and the IRS is on the look-out for abuse in this area. Also, computing and reporting the correct amount of self-employment taxes can be tricky. This tax problem tripped up Treasury Secretary Timothy Geithner. A tax pro with experience in reporting self employment income and the unique and legitimate tax strategies of your specific work or situation can also help you maximize your tax savings and keep you within the boundary of the tax laws.

Investment Sales: If you report sales of stocks or mutual funds in non-retirement accounts, you'll have to compute the capital gains or losses from the sales. You'll need to complete Schedule D form, Capital Gains and Losses. But to calculate your gains or losses, you'll need to figure out your cost basis, which includes what you originally paid plus any reinvested dividends. And if you sold shares of stocks or mutual funds you've owned for a long time, then you may find it nearly impossible to do this, especially if you can't locate all your records. A tax pro with experience in reporting investment income can help track down the information you need. They can also help to prepare a good faith estimate of your investment cost that the IRS should be willing to agree with.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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