It is best to seek professional tax help if income is high

PATRICIA BLISS

Originally published Tuesday, March 19, 2002

Are you wondering whether it's a good idea to prepare your own income tax return?

If your return is relatively simple, the Internal Revenue Service has made it easier than ever to do your own taxes. The IRS has a great Web site at www.irs.gov.comwhere you can get forms and information.

It is suggested you seek professional help every few years. They will help make certain you don't risk missing new opportunities for tax savings.

The tax code seems to become more complicated and confusing every year. Unfortunately, it has even caused some tax preparers to give up tax preparation.

A professional may help if you were divorced during the year, exercised stock options, had income from any unusual source (such as an insurance settlement), refinanced your home mortgage or sold a limited partnership investment on which you've been incurring annual losses.

If you or your children are attending college, or if you have a business, a rental, investments in stocks, bonds, mutual funds, you may also benefit from professional help.

Watch for these real mistakes some of our new clients have made on their prior returns. The computer tax software's questions would even have overlooked several of these:

- Overpaid taxes. Glen refinanced his house again and didn't take the allowable remaining points on his prior loan and overpaid taxes by $840.

Danielle inherited business property and sold it, paying tax on gain of $47,000 when there really was no gain.

Vanessa did not take depreciation on a rental house. Since IRS always treats it as if depreciation were taken, she was charged an extra $3,100 in taxes.

Dawn had dividends that she reinvested and paid taxes on. She did not add to her stock basis and overpaid her taxes by $600 on the sale.

Phyllis was very active in charitable organizations. She only deducted her actual cash donations, not her mileage and out of pocket expenses. She overpaid her tax by $480.

- Underpaid taxes and audits. Melanie had an in-house housekeeper she paid $300 per month. She neglected to treat her as an employee and pay the taxes as the law requires. She also failed to file the required W-2s.

Shirley purchased a rental and mistakenly depreciated both land and house. She owed back taxes when audited.

Carol treated her Jeep Cherokee as a 100 percent business vehicle on her tax return and helped flag an audit. Jaime sold a rental and tried to rollover the gain into a new rental without doing a "1031 exchange." On her audit she owed $28,000 more in taxes.

So again, if your taxes include just wages and interest as income and a house payment as deductions, you can probably do your own taxes with confidence.

But if your income is high or you have any complications, you may need the help of a professional. Many times the tax saving will more than offset the professional fees. Be careful to not overlook deductions and overpay your taxes.

Patricia Bliss is president of Patricia Bliss & CO, PS, providing tax, accounting, and financial advising to small businesses, nonprofits and individuals. Write to her at P.O. Box 1637, Olympia WA; call 360-754-5848; or visit www.blisscpa.com.

The Olympian Copyright 2002

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