When To Hire A Pro To Do Your Taxes

Ray Martin Offers Soup-To-Nuts Look, Including How To Find Good One If You Go That Route, How Much To Pay, And Much More

(CBS)  While you may want to forget about your taxes until April, that's almost impossible if you're a regular TV watcher: The airwaves have been flooded with commercials for various tax services. But should you use a professional company or individual to prepare yours? Is it worth it? When is it strongly advised? If you do, how much should you pay and how do you find one you can trust? The Early Show's money maven, Ray Martin, provides in-depth answers to those questions, and more, in this column.

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For a lot of people, preparing and filing their own taxes is confusing, time-consuming and loaded with potential problems.

Living proof of that is newly-confirmed Treasury Secretary Timothy Geithner. He endured a hailstorm of criticism when lawmakers learned he had underpaid more than $34,000 in taxes. Geithner says he did his taxes himself using TurboTax to prepare his taxes in years 2000 through 2002, and again in 2005.

Geithner, the former head of the New Your Federal Reserve Bank, was nominated by President Obama to head up the U.S. Treasury Department which, ironically, oversees the Internal Revenue Service, because of his extensive knowledge of and experience in financial and tax matters.

So, how could someone with this experience make mistakes on his tax returns, even when he used a tax preparation computer program? Apparently, he got tripped up because he failed to pay self-employment taxes on the income he earned while he working at the International Monetary Fund - an error he blamed on his “careless mistakes” and not the tax software. Maybe he would have been better served had he hired a professional to do his taxes.

Do it Yourself or Hire a Tax Pro?

The IRS estimates that about half of all tax returns are prepared by a tax professional.

The most common reasons individuals cite for using a professional tax preparer are not having the time, willingness or ability to prepare their own. With times as tight as they are today, a lot of folks may be tempted to try to save a few bucks, forgoing the tax preparer’s fees, and prepare and file their own tax return.

But that may be penny wise and pound foolish.

Examples Of When To Consider Turning To A Professional Tax Preparer For Help:

Short Sale: If you sold a home through a short sale last year -- a transaction in which the lender allowed you to sell the home for less than the mortgage balance and cancel the remainder of the debt -- you will need to report the sale. A temporary tax law effective for such sales from 2007 through 2010 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, in the 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 it 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 repairs or capital improvements, which affects how they can be deducted.

Recovery Rebate Credit: Last year, the government issued the “recovery rebate credit,” checks that totaled $600 per person, or $1200 for couples, or more. While eligibility for receiving the rebate check is based on your 2008 income tax return, since this was done last year, Congress based the initial round of checks on 2007 tax returns as a way to get the money into the hands of folks more quickly. Since the rebate was really a credit against your 2008 taxes, many folks who did not receive a rebate check in 2008 may be able to claim it when they file their 2008 tax returns. If, in 2008, you lost your job and will report lower income, had a child, graduated college and were no longer claimed as a dependent, or are a retiree who did not file a 2007 tax return, then you may be eligible to claim an additional “recovery rebate credit” on your 2008 taxes. See an experienced tax pro to help you figure this out.

Self Employed Income: If you are 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 in which a lot of folks are likely to go too far, and the IRS is on the lookout for that. Also, computing and reporting the correct amount of self-employment taxes is tricky - just ask Mr. 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.

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 that, 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, or come up with a good faith estimate that the IRS will accept.

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Add a Comment

by vexation56 February 6, 2009 4:51 PM EST

It is impossible for someone who has any knowledge at all of taxes to miss paying self employment taxes on earned income.

Also, Turbo Tax software asks you questions about any income you enter that are not wages.

Geitner knew exactly what he was doing. He is nothing more than a tax cheat.

Reply to this comment

by wardoglrs February 6, 2009 3:25 PM EST

The authority of the federal government to collect its income tax depends upon the 16th Amendment to the U.S. Constitution, the federal income tax amendment, which was allegedly ratified in 1913. After a year of extensive research, Bill Benson discovered that the 16th Amendment was not ratified by the required 3/4 of the states, but nevertheless Secretary of State Philander Knox fraudulently announced ratification.
Webmaster''s Commentary:

Now remember that the people telling you that Benson is wrong and the 16th Amendment was ratified are the same people who told you Saddam had nuclear weapons.

Because of the Iraq nuke deception, we KNOW that the US Government lies to the people. Is it really so absurd to imagine that they lied to open a permanent door into your wallet?

Reply to this comment

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[vexation56]

It is impossible for someone who has any knowledge at all of taxes to miss paying self employment taxes on earned income.

Also, Turbo Tax software asks you questions about any income you enter that are not wages.

Geitner knew exactly what he was doing. He is nothing more than a tax cheat.

[wardoglrs]

The authority of the federal government to collect its income tax depends upon the 16th Amendment to the U.S. Constitution, the federal income tax amendment, which was allegedly ratified in 1913. After a year of extensive research, Bill Benson discovered that the 16th Amendment was not ratified by the required 3/4 of the states, but nevertheless Secretary of State Philander Knox fraudulently announced ratification.
Webmaster''s Commentary:

Now remember that the people telling you that Benson is wrong and the 16th Amendment was ratified are the same people who told you Saddam had nuclear weapons.

Because of the Iraq nuke deception, we KNOW that the US Government lies to the people. Is it really so absurd to imagine that they lied to open a permanent door into your wallet?