Last Updated Feb 15, 2011 10:50 AM EST
Here are a few situations where turning to a professional tax preparer for help is strongly advised.
- Short Sale: If you sold a home through a short sale last year - a transaction where the lender allowed you to sell the home for less than the mortgage and cancel the remainder of the debt - you will need to report the sale. A temporary tax law for short sales through 2012 allows individuals in this situation to avoid reporting as income the amount of the debt that was cancelled. A tax pro can help to ensure you report this properly.
- Rental Income: Many homeowners who cannot sell their homes have turned to renting 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 the income and related expenses on Schedule E, 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. To be deductible, some expenses must be apportioned over the rental period and other expenses - such as repairs - need to be classified as either repairs or capital improvements, which affects how 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 folks are likely to go too far. The IRS is on the look-out for this. Also, computing and reporting the correct amount of Self-Employment taxes is tricky - this tripped up Mr. Geithner, U.S. Secretary of the Treasury. 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.
- 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 - 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 have a hard time doing this, especially if you cannot 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 is the IRS should be willing to agree with.
A lot of folks are tempted to game a tax pro's fee by "following last years forms" to prepare this years tax return. I don't recommend doing this, but if you do, at least hire a tax pro to look over what you did to determine if you prepared your return correctly and are using all of the forms you might need to file.
Consider using a service such as H&R Blocks Second LookÂ® . For a modest fee, they'll offer to review your 2009, 2008 and 2007 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, but they are offering this for free until March 31st. They claim to have found errors that resulted in tax savings on 2 out of 3 returns.