I emailed my CPA to ask what our tax liability would be if we sold some properties. He answered my question via email and I got a bill a month later. I feel like we pay a lot for our tax prep ($1500) and to be billed to ask a question seems a little petty.
I have asked questions before and not been billed.
Is this common practice?
I guess I’m lucky.. I have a CPA and he is also a Real Estate Investor.
His fee is a flat annual fee.
I ask him many questions and I don’t get charge for them, and he encourages me to ask questions.
Name is Taylor Brugna found him in BiggerPockets.
@Larry H. That sounds a little petty to me. I think the billing of a CPA, or any trusted adviser should be based on their time involvement, or flat monthly/annual fees.
Let me answer as someone in professional services myself.
We get paid to give advice. To answer questions, if you will.
We get paid for our time, which is all we have to sell.
We get paid to do the research necessary to answer those questions.
We get paid to take on the liability (and carrying the E&O insurance) of possibly answering those questions incorrectly.
I don't get charged, nor do I charge, for simple questions that can be answered instantly from prior knowledge.
But determining what your tax liability is, if you should sell some properties, could be a fairly complex question to answer. And it certainly opens your CPA to liability of he answers incorrectly.
If he has to spend time answering your question, and assume liability by answering it, you should expect to be charged for it.
No I only pay when I file my returns
Hello @Larry H. !
Obviously every situation is different, but if your question was pretty simplistic (ex "Hey, if i sell X property for $XXX, what's my gain?") charging seems a little overzealous (this coming from a CPA).
I try to look at my client interactions an awful lot like my interactions with my contractors on my properties. If I have a question for my realtor as to what my local comps are for a property, I probably wouldn't be pleased if my realtor sent me a smaller bill for that time to do the comp's.
I realize it's not an apples to apples comparison (as realtors usually receive a commission), but in the world of real estate I find investors like that approach (as it aligns with their normal communications with other contractors in their business).
Obviously, there are situations where charging could be appropriate (i.e. asking how to properly structure a 1031 across 5 properties, etc.). As long as the CPA notifies you beforehand when they are billing, I think that's a reasonable approach.
Thanks for the mention @Yonah Weiss !
@Larry H. As with anything in billing, the main thing is transparency. The fee structure should be spelled out clearly in the engagement letter. Whether you are paying a monthly fixed fee, annual fixed fee, or hourly rate, you should know the price tag of asking a question before you ask it.
That being said, I agree with @Nathaniel Busch . I believe most CPA's who bill hourly would not charge for uninvolved questions, but would expect to be compensated for complex questions.
He should tell you ans is not free his fees are $xxx an hour. IMO this is not professional. I think you can dispute it and tell him you will pay $500, as an example ,to maintain an acceptable relationship.
As for mine, no, He ans all questions same day. He does my tax and if you want he will provide a tax reduction meeting to save you more tax at no charge.
For real estate advice my consultation is free. But after putting in 6 months of my time with no sale, I mention to these people I charge a fee by the hour. All of them get the message getting free advice from someone else.
The problem is that you have a CPA who thinks their time is worth something. That's the biggest misconception CPAs (and attorneys for that matter) have. They think that just because they spent time on it, they should be compensated.
What these folks completely miss is that fact that their time is actually not valuable at all. The value they provide during that time is what the client wants to pay for.
If a CPA takes 10 minutes and saves you $10,000 (trust me, it can happen), should the CPA charge 1/6 of their hourly rate or should they charge you $1,000? Let's say it's not a CPA, it's just a consultant, would you pay them $1,000 to save you $10,000? Of course you would. Regardless of how long it takes.
CPAs literally de-incentivise themselves when they bill per hour. They think every minute is worth the same amount of money which is hogwash. There's no form of value pricing involved. They don't have an incentive to work harder or smarter, just longer.
So to answer your question: should your CPA charge you for the email exchange? If they provided value, absolutely. On an hourly basis? Absolutely not.
But if that's the CPA you chose to work with...
We scope annual contracts on a per client basis and bill our clients a fixed monthly rate. It includes phone calls, tax returns, and unlimited email support. So our client are inherently paying for the email support, but they don't get a bill every time they send us an email.
Hi, @Larry H. !
To echo some other responders, every situation (and CPA) is different. Personally, I don't charge my clients for answering normal, routine questions they ask (I would consider your question normal and routine) for two reasons:
1. I would hate for my clients to feel as though they can't reach out for advice for fear of being charged. After all, advice is part of the reason they hired me!
2. I'm a question asker myself, and I encourage questions. If you don't ask questions, you're not going to find out what the answer is, right?
With that said, like @Nathaniel Busch and @Daniel Hyman said, some questions require complex and time consuming answers. If that's the case, your CPA should clearly dictate the amount of work required and amount to be billed, if any.
If you feel unsure as to whether or not you will be billed for certain questions going forward, I would suggest––you guessed it––asking more questions: "Should I expect to receive a bill for your time in answering my question(s)? If so, what is the estimated fee?" If nothing else, this will quantify how bad you want the answer!
Hope this helped,
Not to get all Zen on you, but your disappointment is a function of your unmet expectations. You can either adjust your expectations or find a CPA that meets the ones you have. I recommend the latter, then discuss those expectations with him/her in advance.
Best of Luck on Your Real Estate Investing.
I only charge my clients for deliverables. So if the expectation is a financial model of the tax hit for various sell scenarios, I would tell the client up front what such an analysis would cost. If the question is phrased more generically, or the expected answer is more of a concept/rule vs a specific number, that isn't likely to warrant a charge.
Every tax pro has a different model for how they handle this. Sounds like some expectation setting is in order.
I typically don’t charge if it’s a quick question I can answer in a few minutes. If it’s skmething I know I will need to spend time on I let my client know and then he or she can decide if they want help with the specific issue or not. Sounds like a communication issue with your CPA.
Every CPA charges differently. For my clients, if they have a theoretical question (Will the sale of a rental property generally be taxable?), then I don't charge for that because I can just answer that type of question easily, it takes about 10 minutes to explain the theory and that's it. I can have that conversation while I'm doing another task because it's just a conversation at that point.
But if the client actually wants me to run calculations and What If scenarios, then that's different. (How much tax will I pay if I sell this house for X dollars?). Now I actually have to pull your file, sit down at my computer and run the calculation. I can't do anything else while I'm doing that. While it may still be the same 10 minutes, it's a different type of work.
In general, however, I won't bill for anything less than 30 minutes. I'll note the time and when I'm figuring out your bill for your tax return next year, I may round up a bit to include this kind of time.
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