Haven't done your taxes yet? Don't panic -- you still have plenty of time. And for lots of people, doing it themselves makes sense. But even though the IRS estimates that individuals prepare about half of all tax returns filed, this may not be the best thing for you.Here are a few situations where hiring a pro to prepare and file your tax returns is worth considering:
- Self-employed: If you're self-employed, the tax code has lots deductions and complicated issues to consider. While you can deduct business-related expenses, this is an area where a lot of folks are likely to go too far, perhaps attracting more attention from the IRS. Also, computing and reporting the correct amount of employment taxes and contributions to individual retirement account plans for the self-employed can be tricky. A tax pro with experience in reporting self-employment income and the unique and legitimate tax strategies of your specific occupation or situation can also help maximize your tax savings.
- Home office: Many self-employed workers are afraid to take the tax breaks related to the business use of their home. But if you use a portion of your home regularly and exclusively for business, then you're entitled to deduct a percentage of your homes taxes, utilities and other actual expenses. New IRS rules also allow another option: you can take a straight deduction of as much as $5 per square foot, up to a maximum of 300 square feet, or $1,500. A tax pro can work the numbers on both options and let you know which is best for you.
- Investment sales: If you report sales of stocks or mutual funds in nonretirement 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. New rules imposed on investment custodians and brokers require reporting the cost basis on investments you sell during the year. If the cost basis information for some shares is known and some is unknown, the reporting for each category (called "covered" and "uncovered" sales) must be broken out and reported separately. An experienced tax pro can help track down the information you need and can help prepare a good-faith estimate of your investment cost that the IRS should be willing to agree with.
- Short sale of a residence: 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 balance due and canceled the remainder of the debt -- you'll receive a Form 1099 C, which reports the amount of canceled debt as income to you. A temporary tax law effective for such sales through 2013 allows individuals in this situation to be exempt from reporting that canceled debt as income. A tax pro can help ensure you report this properly.
- Rental income: Some homeowners who can't sell their home have turned to renting, with the hope of waiting out the decline in home prices and selling later when the market improves. If you've received rental income, you have to report it 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. However, other expenses -- such as repairs -- need to be classified as either repairs or capital improvements, which affects how and when these costs can be deducted.
Use a tax pro to check your work
If you're still determined to prepare your own tax returns, before you do, at least hire a tax pro to look over your forms to check that you prepared your return correctly and are using all of the forms you might need to file. Services such as H&R Block's Second Look will do this.