Investor · Virginia Beach, VA · Member since 2016 · 5 posts · 0 votes
Hey there BP, I need some advice! After recently reading the book on tax strategies for the savvy real estate investor, I decided to review my past returns. Guess what! My taxes are all messed up!
The good news is the error is in my favor as my tax guy didn't carry over unallowed passive losses and then didn't apply them to a property sale last year. That mistake bumped me into a higher tax bracket which my W2 witholdings weren't enough to cover. I ended up paying, but after finding this mistake I'm pretty sure they'll owe me instead. The funny part is that my past returns that I did myself are good. It's only the last two years where I used a tax preparer BECAUSE I had real estate transactions I didn't want to mess up on my tax filings!
Any advice on how best to correct this with the IRS? Has anyone else had to correct a prior year return like this before? Any lessons learned to share? Thanks all!
full-time CPA & part-time RE Investor · Colorado Springs, CO · Member since 2016 · 102 posts · 46 votes
10y
Another CPA here and I agree. Make sure you find a good CPA and have your tax returns amended to give you the passive losses you should have gotten.
Unfortunately, taxes aren't simple and not every tax preparer knows what they are doing. It sounds to me like the tax preparer didn't bother to check your old tax returns for the passive losses, so he didn't show them on the returns he prepared. That is a common error.
Investor · Virginia Beach, VA · Member since 2016 · 5 posts · 0 votes
10y
Brandon Hall and Michael McDevitt , thanks for the advice. No, he didn't have credentials. I'm currently living overseas so he's a local expat that does US taxes. Should have just reached out to a better resource back in the States I guess. Pretty cheap lesson learned, so I'll consider myself lucky.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
Well, no credentials perhaps but he must be a registered to do taxes for a fee, and as such they are responsible for their errors, interest and penalties and costs to correct, but not if they were not given the correct information, then it's on you.
I'm pretty sure Brandon can handle it! Good luck :)
Investor · Virginia Beach, VA · Member since 2016 · 5 posts · 0 votes
10y
@Bill Gulley, that's a great point! He is registered and submitted electronically for me - but that, I realize now, doesn't mean he actually knows how to do even basic RE related income taxes. I should have shopped better, but fell victim to the complacency of "local" vs quality. Won't make that mistake again.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
Well, there are all kinds out there, the cashier at Penny's who graduated from H&R Block training and became registered.
In RE, you need a someone with an accounting degree (4 year, not 2) and much better a CPA, both having real estate knowledge.
The advantage of a CPA (which isn't required unless you're a public entity) is that a CPA will have professional liability insurance, they have more training in law, deeper understanding of taxation and tax rulings, general finance and estate matters, IMO well worth the difference as opposed to a general or non-CPA advanced accountant......unless you found someone like me, but I don't do taxes! LOL
Since we now conduct business electronically, there is no need really for your accountant to be down the street, cell phones have unlimited minute programs! So, IMO, it's best to seek the most qualified specializing in real estate and taxation. It will save you money in the long run. Good luck :)
Accountant · Cranford, NJ · Member since 2016 · 34 posts · 22 votes
10y
You mentioned that you live out of the country. In addition to the real-estate matters, I would advise finding a CPA who is comfortable with the IRS/FinCEN requirements for foreign disclosures. While the IRS and FinCEN disclosures do not generally generate tax there are a range of penalties that can get imposed in the event of non-compliance.
Investor · Virginia Beach, VA · Member since 2016 · 5 posts · 0 votes
10y
@Karolis Matulis, thank you for bringing this up. My current situation overseas is as a U.S. gov't employee so for W2 taxes it's as if I'm still living stateside (no income is reported as earned abroad). That said, I've not looked into my RE income! For the future, we're strongly considering the option of keeping a residence outside the U.S. - and I'm not at all smart on those implications. Much more to learn! Thanks for bringing this up.