The Internal Revenue Service was forced to revamp Schedule D to incorporate last year's $350 billion tax cut, which reduced taxes on long-term capital gains and dividends. The new form is 53 lines long — 13 more than last year. And that doesn't include worksheets.

Part of the problem: Not all investment profits are eligible for the tax cut. Taxes will vary on profits from the sale of stocks or stock mutual funds, depending on the sale date. And not all dividends will qualify for the lower rate.

Fortunately, most of the heavy lifting will be done by mutual fund companies and brokerage firms. They're supposed to send you a 1099 statement, which shows how much you earned from capital gains and dividends. The documents will also help you figure out whether your gains or dividends qualify for the new tax rates.

Financial firms have been scrambling to get 1099s in the mail, and some may be forced to send out corrected versions later, tax experts say. You may want to double-check your 1099 against your monthly and quarterly investment statements, particularly if you were active in the stock market last year, says Doug Theobald, partner with PricewaterhouseCoopers.

Life is short, and Schedule D is very long. Save time and your sanity by enlisting help from a good tax software program or competent tax preparer.

Even then, you'll need good records and a general idea of how the new law works:

Capital gains

The tax package reduced the top rate on investments held for more than a year to 15 percent from 20 percent. For investors whose tax bracket is 15 percent or lower, the long-term rate was cut to 5 percent from 10 percent.

But here's the tricky part: The new rate applies only to sales after May 5, Theobald says. If you sold a stock or mutual fund on or before May 5, you'll pay the old rates.

If you received capital gains distributions from your mutual funds, the 1099 from your fund company should break out whether they're pre- or post-May 5 gains. You can skip Schedule D if your only capital gains were from mutual fund distributions, but you'll still have to wrestle with a 29-line work sheet.

The rate on short-term investments didn't change. Gains from stocks or funds held for a year or less will be taxed at your ordinary income tax rate.

Dividends

The 2003 tax package reduced taxes on stock dividends to 15 percent if your tax rate is 25 percent or higher, and 5 percent for taxpayers whose tax bracket is 15 percent or lower. In the past, dividends were taxed at your ordinary income tax rate, so this is a big break for investors in the higher brackets. But not all dividends qualify for the lower rate.

In general, dividends paid out by U.S. companies listed on a major stock exchange qualify, Theobald says. But many other kinds of income will continue to be taxed at your ordinary income tax rate, including:

• Interest from bonds, bond funds, money market funds, certificates of deposit and other fixed-income investments.

• Income from deposits at your credit union. While these payments are often referred to as dividends, they're interest income and taxed at your ordinary rate, says Fred Grant, senior tax analyst for TurboTax.

• Mutual fund distributions of earnings from bonds or money market accounts. Distributions of short-term capital gains don't qualify, either, even though they're often called dividends.

• Some dividends from preferred stock, real estate investment trusts and foreign companies. Your 1099 should include a box this year that tells you whether a dividend is qualified or "ordinary," which means it will be taxed at your income tax rate, Grant says.

• Dividends that don't meet the required holding period. The rules include a complicated holding period requirement to prevent investors from gaming the system. That would be possible, says Mark Luscombe, federal tax analyst for tax publisher CCH, because share prices predictably rise before a dividend payout and fall after what's known as the ex-dividend date, basically a bookkeeping function to help companies determine who must be paid dividends.

"Ex-dividend" is a synonym for "without dividend." Buyers of a stock on or after the "ex-dividend date" are not entitled to the next dividend payment.

The ex-dividend date is usually two business days before the "record" date, the date on which an investor must own the stock to qualify for the dividend.

To deliver the tax benefit to long-term shareholders rather than investors timing the stock-price swings, the lower dividend tax rate applies only if the stock is held for at least 61 days out of the 120-day period beginning 60 days before the ex-dividend date. If you buy a stock on or after the ex-dividend date, you're not entitled to the dividend.

When calculating your holding period, omit the purchase date but include the sale date, Grant says.

For example, suppose a U.S. company declared a dividend on May 12, 2003. You purchased 100 shares on July 10. The dividend was paid on Aug. 15 to shareholders of record on July 17. The ex-dividend date was July 15.

If you sold the stock on Sept. 9, you're eligible for the lower rate on your dividend because you held the stock for four days before the ex-dividend date, on the ex-dividend date and 56 days after the date, for a total of 61 days. If you sold before Sept. 9, you would not qualify for the lower rate.

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By Marshall Loeb and Brendan January
CBS MarketWatch

NEW YORK — Do you need professional help to prepare your taxes?

Consider this statistic: People who do their own tax returns are more than twice as likely to make an error as those who rely on professional help. Of the 27 million self-prepared tax returns filed for tax year 2002, more than 8 percent contained errors. By comparison, barely 3 percent of 38 million returns filed with professional help showed errors, according to the IRS.

There is no reason to seek professional help if filing your taxes is a routine and relatively simple matter.

But if you have complex finances or you experienced a significant financial change last year — you moved across state lines, sold or bought a house, exercised stock options or inherited money — you may want to look for professional advice.

Not only can a tax preparer save you from errors, they can alert you to missed opportunities for deductions.

Finding the right help is extremely important. There are many types of tax preparers with varying levels of expense and expertise — unlicensed preparers in chain stores, enrolled agents, CPAs, tax attorneys.

Look for a preparer whose skills and experience match your needs.

For IRS advice on choosing a preparer, check out www.irs.gov.