In this post I’m going to talk about some of the most common cases where I usually suggest that my clients seek the guidance of a qualified CPA to prepare their taxes.
You Recently Sold a Residence
Your taxes for the year in which you sell a residence will be more complex than usual. Although most people are aware that the gains on a sale of your primary residence can be tax-free up to $250k Single or $500k Married Filing Jointly, there are other issues that might come into play.
Some of these issues may include:
– Recapture of depreciation
– Calculating an accurate cost basis
– Deducting final “points” on a refinance in the year sold
– Special situations in which you did not live in the residence for 2 of the last 5 years or previously used the residence as a rental property
You Have Multiple Rental or Income Properties
If you have several income properties, you will need to file Schedule E for your income and expenses. Issues such as passive losses, recapture of depreciation, and 1031 exchanges, can all become complex very quickly. A good CPA can provide valuable guidance to make sure that you are following the rules.
You Recently Started Working for Yourself
If you recently started your own company or are now working for yourself, the guidance of a CPA can really help during your first few years in business. Even if you use a bookkeeper and keep really good records, filing your taxes can be very time-consuming at first. You will now need to file a Schedule C to report your business income and expenses, including the often misunderstood home office deduction.
A CPA can also assist you with business formation and access the pros and cons of different business structures. These decisions will affect your tax situation so it is important to get it right.
You Have Stock Options and Equity Awards
The treatment of different types of options and equity awards such as ISOs, NQ options, and restricted stock can be quite complex and have significant tax implications. Should you file an 83b election or not? Should you exercise options this year or next year? There are a lot of moving parts to consider.
A good financial planner working closely with a CPA can help you figure out your best strategy for exercising your hard earned stock options. The ideal time to think about this is in the second half of the year. You will still have time to make a decision to exercise this year or the next tax year, depending on your situation. A CPA can help you to model the tax implications of your decision, and make sure that your return is correct when you file.
You have a High Income
If you have a high income of over $200,000, you should consider professional help. A good CPA and financial planner will be able to suggest ways to minimize your taxes, and with a little planning, you might be able to stay in a lower marginal tax bracket. You will also likely be affected by the complicated AMT, or alternative minimum tax.
The stakes are also much higher due to errors both in accidentally overpaying, or getting audited. Most likely your time is also becoming more valuable to you, and at this point it might be better to just outsource your tax return to a pro.
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