Tax return suggestions?

15 Replies

I am looking for someone to do my taxes or doing it myself on like TurboTax. I have a rental property and I keep very good records, what do you do? Do you do your own taxes, go to Liberty Tax (or similar service), or have a C.P.A. Help you with your return?

Marcin, until this year, I always used TurboTax. We now have two rentals, so I decided to bite the bullet and go to a CPA.

TurboTax is fine. It's fairly dummy proof and will walk you through most of what you need to know. With good records, it should be good for now.

With one property, you probably can do TurboTax.  I think the only complication might be differentiating repairs vs. capital expenses.  If you do go with a CPA, you want one with a decent amount of Real Estate tax experience.  Not so much for right now, but for future questions and tax planning.

@Marcin C.  Turbo Tax will likely be okay for the first property, however the software is just a questionnaire and may not do a good job of fully understanding your situation and reasoning behind certain write-offs. 

A CPA, as I am sure you know, will take time to understand and analyze your situation. The CPA will know how to better avoid taxes than Turbo Tax. It really can't hurt to bring them on your team early on so that they "grow" with you, if that makes sense. It may be costly at first, but if you continue to purchase properties, economies of scale will kick in and make the CPA worthwhile. 

@Jesse T.  makes a good point regarding repairs vs. improvements. The IRS enacted the final regulations which addresses repairs vs. expenses and it can be quite complicated. Your CPA will know how to navigate those waters, however since the regulations were enacted this year, I can't say how Turbo Tax will approach the subject. I wrote a blog post on the final regs if you would like to check it out here.

I use a tax attorney.  Sure, he's more expensive than Turbo Tax.  But I can't call Turbo Tax during the year when I need tax advice. 

Originally posted by @Marcin C. :

I am looking for someone to do my taxes or doing it myself on like TurboTax. I have a rental property and I keep very good records, what do you do? Do you do your own taxes, go to Liberty Tax (or similar service), or have a C.P.A. Help you with your return?

 I've been using Tax Slayer for my taxes for the past 5 years or so (before and after owning rentals).  I just sent my '12 and '13 returns to an accountant to do a free review of them for me.  She's now sending amended versions of both back to me to sign and send to the state and IRS for about $6800 in additional refund.

The short answer is even with only one rental, you may be saving $300-500 by doing it yourself while missing out on thousands in additional tax benefits.

I used to use TurboTax religiously until the IRS sent a demand letter for some back taxes where I made an accidental omission on my return.    Couldn't figure out how to unwind the mess, so I hired a CPA who happens to be a friend.   He not only fixed the mess, but caught some deductions I missed and got me a refund for that year instead of the incremental payment requested. 

I now consider him a strategic partner for tax planning, including all my REI activities. He costs more than TurboTax, but my tax situation is complex enough that he adds more value than he charges.

CPA

Unless you can accurately calculate your rental's basis and depreciation, use a tax guy, specifically, a tax attorney (if the IRS does come knocking, they can represent you.) Without depreciation, you are losing out on one of the great benefits of investing in real estate.

Also, if you dont already have an LLC stood up, do so and transfer the property to the LLC. Not only will you get liability protection, but you could then stand up a SOLO 401k and protect more of your income from taxes. And LLC's get audited even less than individuals.

Originally posted by @Scott Lewis :

... Also, if you dont already have an LLC stood up, do so and transfer the property to the LLC. Not only will you get liability protection, but you could then stand up a SOLO 401k and protect more of your income from taxes. And LLC's get audited even less than individuals.

Scott, having LLC with one rental property does not qualify you for Solo 401k. The rental property produces rental income which is considered to be passive income. You need active "earned" self-employed income in order to qualify for a Solo 401k.

Originally posted by @Dmitriy Fomichenko :

Scott, having LLC with one rental property does not qualify you for Solo 401k. The rental property produces rental income which is considered to be passive income. You need active "earned" self-employed income in order to qualify for a Solo 401k.

 Dmitriy, that's really good to know. Could you point me in the direction of the IRS code that addresses this? I want to be able to go back to my tax guy armed with some really tough questions for him to answer.

@Scott Lewis  

your tax guy (if he is decent tax expert) should know this, but here is the link to the IRS website for reference:

http://www.irs.gov/Retirement-Plans/One-Participan...

Hope this helps. 

CPA, all day long. I tried TurboTax and I still missed stuff. One of the biggest benefits of owning rental properties is the tax breaks, and those are sooo easy to miss, I recommend an investor-friendly accountant. Plus the rules change every year, so it'd be almost impossible to keep up with yourself. 

Nearly guarantee you are missing stuff doing it on your own, even with TurboTax.

Do not feel like you need to use someone local. Many of us accountants have clients worldwide. Payroll, bookkeeping, etc can mostly be done remotely.

Here is a great list of questions to ask a potential accountant:http://www.biggerpockets.com/forums/51/topics/70447-questions-to-ask-a-cpa

Also check out the www.NAEA.org page in your search. It should help you find someone local. If someone comes to me, I'll send them your way.

If you need help in your search or want to verify something don't hesitate to ask.

For example: I have clients worldwide and things are just as easy as I e-mail them, talking on the phone. I even use Skype and TeamViewer to communicate with clients so I'd highly recommend looking for one of the best with great references that interviews well with you.

So look for someone you can connect with that works out for your situation.

Feel free to ask here if you have questions.

Go with the CPA. These online tax things or even H&R block have no clue what the rules are for investors.

My first investment even was a flip and the only flip I ever did. I went to H&R block. I figured at least I was getting a human that I could run the scenarios by. They told me I was not able to deduct the 3 or 4 months of interest I paid on the investment property loan while I was holding it.

Made no sense why I couldn't. But she was adamant.  Represented about a 3,500 deduction I think. 

When I bought my first rental a couple years later, I went to a cpa and asked them to take a look. They said the HR block lady was clueless.

Go with the cpa, they can give you all your options and the consequences. You do not want to wait til later on. Because once you start reporting things a certain way, there's no going back.

With one property, you might want to consider accelerated depreciation. But you have to make that decision in the first year you report  on that property. If you don't, its too late. (I think - which is why I use a cpa).

But knowing your options and the consequences of choosing each one is what you can only get from a cpa.  And the choices you make can easily save you thousands of dollars - even if you only have one house right now.

My two cents - I strongly recommend working with an Accountant, CPA, or Tax Preparer who has a niche in the real estate and property management industry.

Work with them on a quarterly basis to strategize your assets and taxes.

It is not necessary they know any accounting or management software, but can read reports and ask you questions. They should definitely know more than you do.

Gita Faust 

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