April 15 looms on the horizon. There’s no denying that the tax man cometh. But with a little simple planning and a few sharpened pencils, filers this year can minimize the pain and maximize their profits when Uncle Sam comes calling.

Tax codes

“There are several changes in the tax codes for 2010,” said Pat Reagan, co-owner of Reagan Management Services in Brentwood. “The majority of taxpayers should be aware of these before filing their taxes.”

Some of the changes include standard deduction rates and inflation adjustments for itemized deductions, the standard mileage rate for business use, per diem rates, student loan interest, standard deductions, depreciation and amortization, earned income credits and the income levels for which one must file a return.

But one of the most significant changes this year comes with the American Opportunity Tax Credit. Renamed from the already-existing Hope Tax Credit, the American credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010. The credit is worth up to $2,500 of the cost of qualified tuition and related expenses, and the new credit offers a $700 increase over the previous Hope credit.

“This is clearly a benefit to many filers,” said Chris Provencher, owner of Provencher Tax Service in Discovery Bay. “This is for dependents and adults taking qualified classes and courses, and it is for tuition and fees, but not limited to that. It also includes books and supplies. It’s a great thing.”

Do it yourself or hire a pro?

With the increasing trend toward online filing, you might wonder when it’s appropriate to file your own return or hire a professional to do the work. “From our point of view,” said Reagan, “filing a 1040A or 1040EZ with income from one W2 would probably be OK to file online. However, if there are additional schedules such as A, E or C, and if the taxpayer has a small-business income, owns rentals or purchased or sold a home, they should seek the counsel of a professional tax preparer. The IRS reports that audits are up more than 100 percent since 2001, and many of these are random audits.”

Provencher agreed that many taxpayers have jumped onto the e-filing bandwagon, but cautioned that for those with more complicated returns, a knowledgeable professional is the safest way to go. “Each year I would say that about 10 percent of my clients disappear because they file their own taxes,” said Provencher. “But the following year at least half of them come back, and that’s because the law is not easy to understand and you really have to know what you are doing.”

Red flags

OK, so you’ve listed every legitimate deduction you can think of and you’ve hired a professional to file your return, but will that guarantee you against a potential IRS audit? Not necessarily.

“An accurate tax return can still wave a red flag when a refund is exceptionally high or when certain deductions such as medical, charitable giving or mileage is higher than usual,” said Reagan. “So be careful about documenting the deductions and income that you report.”

Keeping good records and receipts is another way to keep the IRS at bay. “Knowing what is deductible and what isn’t is key,” said Provencher. “What will send up a red flag? Anything to do with clubs or social dues; they are not deductible. “I would just tell people to choose your tax professional wisely. There are a lot of folks out there that have hung a shingle but aren’t certified. Take the time and interview a few. It will be worth it.”

Provencher Tax Service is located at 5560 Starboard Drive in Discovery Bay. For information, call 925-634-5658. Reagan Tax Management Services is located at 60 Eagle Rock Way, Suite C (behind Vic Stewart’s Steakhouse) in Brentwood. For more information, call 925-240-1242.