I have Outgrown my Accountant -Looking for Recommendations RE CPA
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Jim KennedyPro Member
Accountant · Cherry Hill, NJ · Member since 2016 · 173 posts · 201 votesI agree with all the previous responses here. You outgrew your $200/yr preparer. Your return wasn't very complicated at that time. Its the old "You get what you pay for". You definitely need a higher level CPA because you're in the investor big leagues now.
For instance, lets think about your depreciation. Standard tax protocol is to back out a portion for land (since we don't know how long land is good for) and take the rest over 27.5 years (Congress told us that number). Is that wrong to do that? No, but you may be leaving a lot of money on the table. Your next tax preparer should be experienced with cost segregation, which is a way to accelerate depreciation and get more deductions in the current year, rather than wait 27.5 years, to get all your cost back, especially if its the year of purchase. Then again, if you've had the properties for more than two years, your next preparer should be familiar with how to take a cumulative adjustment in the current year for ALL the years you owned the property, known as a Section 481(a) adjustment, AND how to complete the related 8 page Form 3115.
Next, let's talk about financial planning. If your next CPA is not a Certified Financial Planner, then you should engage one if you have significant assets - real, stocks, bond, cash, etc. A CFP (Certified Financial Planners) should excel at this. They should have the ability to match your goals to one of easily a dozen different types of retirement vehicles, NOT just try to sell you a variety of insurance policies, as well as explain it all to you in one and two syllable words. Fun fact: I'm a CPA but I don't do my own financial planning. I work with my CFP because that's what he geeks out on. Your next CPA and your CFO should work hand in hand to lower your taxes and prepare you for the future. Remember the 5 P's of the Marine's - Prior Planning Prevents Poor Performance
Then there's your state issues. Of the 44 states that have income tax, no two are completely the same. State tax law does not always tag along with the Federal tax code. Each state is free to write their own rules. In NJ for example, you can deduct medical expenses in excess of 2% of your resident income and your property taxes. If you rent, there's an 18% tax credit for that, too. But you cant do that in Pennsylvania, although you can write off certain out of pocket business expenses there. But you can't in Massachusetts, but you can write off certain Social Security withholding amounts apart from the Federal rules. But you can't in Florida. Know why? There's no income tax in Florida! So your next CPA should be experienced in your states if investment.
So you should no longer be looking for a data-in, data-out CPA since you have a demonstrated level of complexity to your annual tax filing. Obviously your CPA is supposed to help you, but you should be prepared to help your CPA. He/she should ask probing questions whose answers help him/her help you - its the old saying "You gotta let help help you"
Your first question should no longer be, "How much will this cost", but "what is your background, experience, what services do you have available, and how often should we meet?" THEN you can inquire about billing. Why in that order? That way you have an idea of what you're getting for your investment, because you get what you pay for. Are the returns billed hourly, or per form? Do you have a secure online portal for me to upload my tax documents to? Will you bill me for every phone fax and email? Somewhere here on BP is a list of good questions you should ask when selecting a CPA.
Especially listen to see how often you should meet. This years estimates are based on last years income, so if your income changes a lot either way, your tax outcome might too. While some business need to meet quarterly, others may need to meet only in December to keep an eye on tax results. Others may not need that at all, but instead may need to meet when a property is sold. Property sales are tricky too, because the gain is increased by the deprecation you've taken since you owned it, so the actual gain could be a rude awakening compared to what your expectation was and that's a problem because when I was in college (roughly 100 years ago) , my old Psychology professor taught us that "expectations are pre-planned resentments.
Its been a great year for sellers. I don't think we'll be seeing these levels of prices for many years to come. Me and the Mrs. sold off two duplexes this year (with two more currently on the market) and dumped it all into our retirement kitty, and yes, we took the appropriate related planning steps. All of this comes under the 5 P's of the Marines: Prior Planning Prevents Poor Performance. Hopefully these seven paragraphs will help have a positive impact on your life. Good luck and happy investing!
Jim Kennedy
6 Replies
- 4yDaniel HymanBusiness MemberCPA · Milwaukee, WI · Member since 2016 · 2k+ posts · 1k+ votes
You can check the network tab or reach out some of the regular posters here on BP. However, with multiple properties and multiple states, be prepared for quotes much higher than what you are used to paying for tax prep.
My Online Accountant572 Reviews - Honolulu · Member since 2020 · 134 posts · 51 votes4y
Hi @Lisa Hall - that is so crazy! i was just going to post that questions too. I am in Hawaii and need a CPA that specializes in REI. I will let you know if I find someone.
- 4yLance LvovskyPro MemberAccountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
Daniel gave you good advice on both ends - look up online here for CPAs.
Secondly, paying $200 a year just doesn’t make sense. Not sure what you are expecting but a quality tax adviser will cost you money.
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes4y
95% of CPA's are the run of mill take the least past of resistance crowd. Perhaps a reason why they still have a day job. Of the good ones or should I say even a good one will not be able to give you full financial planning advice such as how much to pull out of retirement accounts or what deals to go into. Think about it... its unfair for them because 1) They don't know the deal risk profiles nor the operators, 2) They don't know your future deployment plans to account for your estimated Adjusted Gross Income for the next few years, and 3) they don't know how much depreciation is going from the plethora of investments you look to go into. This is where I tell my investors that it is your job to understand what you can and cannot do and lead your professionals who JOB is to complete the technical paper work. CPA/Lawyers are Contractors but you need to be or outsource someone to be your Architect. In other words, I don't advocate to working for a good CPA and trusting them to do it... their job is to fill in the right forms but you need to be in control as the owner and not let the consultant dictate the scope of work. You need to be empowered to be your own architect and connected directly with the rolodex of able professionals.
- 4yJim KennedyPro MemberAccountant · Cherry Hill, NJ · Member since 2016 · 173 posts · 201 votes
I agree with all the previous responses here. You outgrew your $200/yr preparer. Your return wasn't very complicated at that time. Its the old "You get what you pay for". You definitely need a higher level CPA because you're in the investor big leagues now.
For instance, lets think about your depreciation. Standard tax protocol is to back out a portion for land (since we don't know how long land is good for) and take the rest over 27.5 years (Congress told us that number). Is that wrong to do that? No, but you may be leaving a lot of money on the table. Your next tax preparer should be experienced with cost segregation, which is a way to accelerate depreciation and get more deductions in the current year, rather than wait 27.5 years, to get all your cost back, especially if its the year of purchase. Then again, if you've had the properties for more than two years, your next preparer should be familiar with how to take a cumulative adjustment in the current year for ALL the years you owned the property, known as a Section 481(a) adjustment, AND how to complete the related 8 page Form 3115.
Next, let's talk about financial planning. If your next CPA is not a Certified Financial Planner, then you should engage one if you have significant assets - real, stocks, bond, cash, etc. A CFP (Certified Financial Planners) should excel at this. They should have the ability to match your goals to one of easily a dozen different types of retirement vehicles, NOT just try to sell you a variety of insurance policies, as well as explain it all to you in one and two syllable words. Fun fact: I'm a CPA but I don't do my own financial planning. I work with my CFP because that's what he geeks out on. Your next CPA and your CFO should work hand in hand to lower your taxes and prepare you for the future. Remember the 5 P's of the Marine's - Prior Planning Prevents Poor Performance
Then there's your state issues. Of the 44 states that have income tax, no two are completely the same. State tax law does not always tag along with the Federal tax code. Each state is free to write their own rules. In NJ for example, you can deduct medical expenses in excess of 2% of your resident income and your property taxes. If you rent, there's an 18% tax credit for that, too. But you cant do that in Pennsylvania, although you can write off certain out of pocket business expenses there. But you can't in Massachusetts, but you can write off certain Social Security withholding amounts apart from the Federal rules. But you can't in Florida. Know why? There's no income tax in Florida! So your next CPA should be experienced in your states if investment.
So you should no longer be looking for a data-in, data-out CPA since you have a demonstrated level of complexity to your annual tax filing. Obviously your CPA is supposed to help you, but you should be prepared to help your CPA. He/she should ask probing questions whose answers help him/her help you - its the old saying "You gotta let help help you"
Your first question should no longer be, "How much will this cost", but "what is your background, experience, what services do you have available, and how often should we meet?" THEN you can inquire about billing. Why in that order? That way you have an idea of what you're getting for your investment, because you get what you pay for. Are the returns billed hourly, or per form? Do you have a secure online portal for me to upload my tax documents to? Will you bill me for every phone fax and email? Somewhere here on BP is a list of good questions you should ask when selecting a CPA.
Especially listen to see how often you should meet. This years estimates are based on last years income, so if your income changes a lot either way, your tax outcome might too. While some business need to meet quarterly, others may need to meet only in December to keep an eye on tax results. Others may not need that at all, but instead may need to meet when a property is sold. Property sales are tricky too, because the gain is increased by the deprecation you've taken since you owned it, so the actual gain could be a rude awakening compared to what your expectation was and that's a problem because when I was in college (roughly 100 years ago) , my old Psychology professor taught us that "expectations are pre-planned resentments.
Its been a great year for sellers. I don't think we'll be seeing these levels of prices for many years to come. Me and the Mrs. sold off two duplexes this year (with two more currently on the market) and dumped it all into our retirement kitty, and yes, we took the appropriate related planning steps. All of this comes under the 5 P's of the Marines: Prior Planning Prevents Poor Performance. Hopefully these seven paragraphs will help have a positive impact on your life. Good luck and happy investing!
Jim Kennedy
- Member since 2021 · 14 posts · 3 votes4y
Dereck has been a blessing for us. Definitely worth interviewing. Good luck!
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