The Retirement Corporation of America

Hiring The Tax Help You Need

THERE ISN'T A lot of wiggle room when it comes to completing your tax return—except for knowing all the deductions, exemptions and credits that can reduce your tax bill.

You generally save tax dollars if you hire professional help: an accountant or an "enrolled agent" (someone who isn't an accountant but who is trained to handle tax matters). Both H&R Block and Jackson Hewitt—the two biggest tax preparation services—have people trained to answer virtually all the tax questions you are likely to raise. Whomever you turn to, you want tax help from someone who is:

•  Qualified. Ask what professional qualifications the preparer has. Ideally, get a referral from someone who has used the person and was satisfied.

•  Patient. This is very complicated stuff. You want someone who will spend a reasonable amount of time working with you and explaining the peculiarities of your tax situation.

•  In your league. Your taxes may be complicated to you, but they probably will appear pretty routine to a veteran tax preparer. An enrolled agent or someone trained by one of the major tax preparation firms should be able to do your taxes—for far less money than it would cost to hire a skilled accountant or tax attorney.

Whomever you hire, work with them while there is still time to do some good. Once the clock strikes midnight on December 31, your taxes for that year are a done deal. You can still make contributions to your IRA or Keogh plan until April 15 of the following year. Except for that, there isn't another thing you can do to your taxes, once the year ends.

Meet with the tax preparer early in the year while there is time to do strategic tax planning. For instance:

•  Plan medical expenses ahead of time. Such expenses are deductible only when they exceed 7 1/2% of taxable income. Have costly medical procedures done, if possible, in years when your taxable income may be lower. That way you'll get the biggest deduction. If you have expenses that don't quite make it to the 7 1/2% floor, try grouping expenses—shifting more medical expenses into one year so you get the deduction and skipping the deduction the following year.

•  Discuss charitable giving. This is a very broad area which we'll cover later in this lesson. While some strategies are only for the rich, you won't know how this applies to you unless you discuss it with a tax professional.

•  Investment losses and your taxes. Investment losses can be used to offset any amount of taxable gains. Work with your tax preparer to manage your investments—selling off losers in a given year to help offset the tax on winners you have sold. Investment losses can also be used to offset up to $3,000 a year in income from non-investment sources. If the loss exceeds $3,000, the excess can be carried over to future years.

•  Discuss your estate tax situation. You'll face an estate tax (that runs up to 50%) if your estate exceeds $1 million in 2002-2003, $1.5 million in 2004-2005, and peaks at $3.5 million in 2009. Maybe you'll never hit that level—but since life insurance, your retirement funds and the value of your home are counted as part of your estate, maybe you will. The point is to think about your estate tax situation early and get professional advice on any estate tax planning you should be doing.