So Long, 1040 Blues - ways to lower income tax

Kiplinger's Personal Finance Magazine, Feb, 2001 by Mary Beth Franklin

"The credit will go a long way toward helping me pay back the money I borrowed for the adoption," says Hartenstein. "It makes it a lot more affordable." He'll also claim the $500 child credit for Teddy.

The $5,000 adoption credit ($6,000 for a special-needs child) covers qualified expenses, including adoption fees, court costs, attorney fees, travel expenses and other costs directly related to the legal adoption of a child under the age of 18. The maximum credit is phased out for taxpayers with AGI between $75,000 and $115,000.

Time to punt?

IF YOU'RE A do-it-yourselfer preparing your return with pen and paper or a computer program, you probably wonder whether it makes sense to turn the whole mess over to someone else. More than half of your fellow sufferers do just that each year, and there are plenty of preparers clamoring for your business.

Professional tax help ranges from commercial preparers, such as at H&R Block and Jackson Hewitt, to neighborhood accountants to enrolled agents (EAs)--who must pass an IRS test to earn that designation--to certified public accountants.

The cost of turning over the dirty work varies widely. H&R Block preparers charged an average of $93 for a basic return with itemized deductions last year. The average cost for an EA to do such a job would be about $200; a client who has a small business, sold stocks or real estate, or owns rental property would pay about twice that much. CPAs sometimes charge thousands for a complicated return.

You undoubtedly have friends and business associates who swear that their tax man or woman saves them far more, in cash as well as in heartache and angst, than the service costs. That's how George and Edie Bisbee of Lake in the Hills, Ill., feel. They were referred by a friend to CPA Sid Blum 12 years ago and have hired him again this tax season.

"My wife was an independent contractor for a travel agency, and I needed help figuring out deductions for office expenses, mileage and other business costs," George says. "Sid showed me I was much too conservative in the way I approached those deductions, and he saved me more than I paid him."

Blum charges a minimum of $250 for tax-preparation services and, like many preparers, sends clients a tax organizer at the beginning of each year to help them gather all the necessary paperwork. "When clients spend the time and effort to keep good records, it makes it easier for us and saves them a lot of money." The Bisbees, who also rely on Blum year-round for financial, retirement and estate-planning advice, pay about $400 a year.

When looking for the right tax preparer for you, the best place to start is with referrals from acquaintances whose finances are similar to yours. E Gordon Spoor, a public accountant in St. Petersburg, Fla., suggests that you interview potential preparers and ask about their qualifications, experience and fees. Also ask about ways they have saved other clients money.

But beware of anyone who guarantees big tax savings. Joseph Cleary, a former high school teacher from Long Island, thought he had stumbled on Santa Claus when he found a preparer who promised--and delivered--big tax breaks each year. But then Cleary was audited three separate times.