There's a lot of talk about hiring a tax professional during filing season. But you also should get expert help any time of the year when your tax circumstances are a bit tricky.
Take the residential property transfer made by the late Joe Paterno.
The 85-year-old former Penn State football coach who passed away Sunday from lung cancer was getting his affairs in order last summer.
In July 2011, Joe Pa transferred full ownership of his house, valued at almost $595,000, to his wife, Sue, for just $1.
This was before the Penn State/Jerry Sandusky child sexual abuse scandal took over Paterno's life and ultimately took his job.
When the charges were revealed, some speculated the transfer of the property, which the Paternos had jointly owned, to "Suzanne P. Paterno, trustee" for a dollar plus "love and affection," was an attempt to protect the family home from potential legal judgments.
Others opined that it was an effort to lessen any estate tax bill. If the federal estate tax was indeed the reason, says Forbes' writer Deborah L. Jacobs, then the Paternos look to have made a bad tax move.
In fact, she writes, the transfer of the house could lead to an increased income tax bite when the trust sells the house.
"Inherited assets are entitled to an adjustment in basis to their value on the date of death. If the property has appreciated, there will be a step-up in the cost basis, which could reduce or eliminate the capital gains tax your heirs have to pay if the property is sold," writes Jacobs. "Because the house was transferred to the trust, the step-up in basis is lost."
By being forced to use the home's original basis, rather than the one stepped up to what the place was worth when the owner died, the eventual seller must use that lower basis amount, prodicing a larger sale profit and therefore more money subject to capital gains tax.
Get help before it's too late: Estate taxation is among the trickiest of tax areas. It's even more problematic now that Congress let the estate tax expire in 2010 and then resurrected it for 2011 and 2012, only to have it face elimination again in 2013.
None of us are privy to the Paternos' personal, financial and tax situations so we don't really know the rationale for the transfer. And you have to believe that the coach, who made a pretty penny over his life, had well-schooled advisers to help him arrange this deal. So perhaps it will work out for the late coach's family and estate.
Regardless, it's a good lesson to the rest of us.
Tax law changes frequently — feel free to blast off a message to your Representative and Senators about their infernal tax law tweaking — and when it comes to something as important as estate planning, whatever the size of your estate, you shouldn't go it alone.
So this filing season when you're shopping for a tax pro to help you complete your 2011 returns, think about hiring that person or another expert to help guide you through some of life's other tax situations.
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