H&R Block/Turbo Tax vs. CPA

39 Replies

I used a CPA for the first time last year. I was reluctant to pay $600 for someone to do my taxes until I got 5 times the amount I usually get back on my taxes!! And that was with almost no effort on my part.

I'm definately using CPA again next year.

@Michelle Eisenberg

I have been landlording for more than 30 years, and I have always done my own taxes.  Over time, I gained quite a bit of expertise in the tax treatment for my real estate portolio.  TurboTax has evolved over the years into a very good product for the DIY crowd, but you do need to know something about what you are doing.  

If you are not tax savvy already, you may want to consider having your tax returns professionally done, AND, independently use one of the tax prep packages such as TurboTax.  Then compare the two returns, figure out the reason for any differences.  As you gain confidence in your own abilities, you may choose to do future tax returns yourself.

IMHO, there is no real value in using a CPA just to prepare your taxes.  The real value is in the tax planning and tax avoidance advice a CPA can provide before you complete a deal that results in a costly taxaable event.

When you take your return to a CPA office, it is highly likely a CPA won’t be doing your taxes. A tax professional, similar to those at a H&R Block or Jackson Hewitt, will do your return. The CPA looks over your return, usually for about 10 minutes, checking for any typos or for items not on your return but on the prior years, a common error. I am not against hiring a CPA, but find out if they are really preparing your return if that’s what you want. A CPA will charge a lot more for this than if they had one of their preparers do it. CPA‘s and tax offIces all use sImIlar software. One Important questIon to ask, is if the IRS does an audIt based on how the return was done, versus you not brInging In a document, will they stand by their work.

Jim, I have to disagree.

In our CPA office, yes we have individuals who we train input the standardized data. W-2's, 1099's etc. Then we move it up the ladder for businesses and rentals to an individual who is more advanced. Finally it is reviewed twice, once by the CPA who manages the client relstiomship and knows the "going ons" and secondly by a technical reviewer.

The reason is two fold. First everyone along the chain is asking questions to make sure the client is thinking of everything and we haven't overlooked something which is where I disagree, I find this a value adding activity. Secondly a return prepared at the partner level is going to cost somewhere between $150-$200/hour in our area. By pushing the work to the appropriate staff level we can keep costs modest. 

Hope this helps define how a CPA firm works or the ones I know of generally. 

Justin 

Since we are on the subject of CPA pros and cons.. I have heard of several CPAs going partial if not all online for their clients to avoid the in person necessity. I believe they set a Skype meeting with secure files transfers etc. Is this something that anyone here has experienced or has feedback from? -Mark

@Michael Plaks That's a really interesting idea to do it myself and then  have a professional check to make sure I didn't miss anything. If I have missed something and I need to pay to have it done correctly, I won't have lost anything, but if I manage to do it correctly, I'll save some money. I'll definitely consider that option. I definitely agree that whatever I decide for this year, I will hire a CPA in the near future because we do plan to buy at least one property a year for the next 10-15 years. The benefits of proactive tax planning are definitely attractive and I appreciate you pointing that out.

Thank you again for your advice!

@Paul Allen Thanks for pointing that out! I was wondering how that would work using the online software. We will definitely have suspended passive losses because between depreciation and the expenses we will incur this year, we will have more passive losses than passive gains. I'll definitely watch out for that if I end up using H&RB or Turbo Tax. 

@Michelle Eisenberg

The problem that @Paul Allen mentioned is one of a few common ones. They happen when the tax return is created from scratch every year instead of being transferred from year to year - in which case the software picks up the carry-forward items. But if you keep changing software or lazy tax offices - then such items are dropped, costing you money.

This is the textbook dilemma: don't pay but risk costly errors or pay a professional. You can also change oil in your car and cut your own hair, as long as you know what you're doing. If you;re willing to invest as much time as @Dave Toelkes did in learning about taxes - then you can probably self-prepare. There're not many investors who understand taxes, however.

Originally posted by @Mark Richardson :
Since we are on the subject of CPA pros and cons.. I have heard of several CPAs going partial if not all online for their clients to avoid the in person necessity. I believe they set a Skype meeting with secure files transfers etc. Is this something that anyone here has experienced or has feedback from?

-Mark

This is what most of us do. By us I mean the tax accountants on this forum. We serve clients nationwide, remotely, using technology. The technology we use varies, and so do the services we offer. 

Originally posted by @Michael Plaks :

@Michelle Eisenberg

The problem that @Paul Allen mentioned is one of a few common ones. They happen when the tax return is created from scratch every year instead of being transferred from year to year - in which case the software picks up the carry-forward items. But if you keep changing software or lazy tax offices - then such items are dropped, costing you money.

This is the textbook dilemma: don't pay but risk costly errors or pay a professional. You can also change oil in your car and cut your own hair, as long as you know what you're doing. If you;re willing to invest as much time as @Dave Toelkes did in learning about taxes - then you can probably self-prepare. There're not many investors who understand taxes, however.

Michael Plaks makes 2 great points here:

1.  I've also seen tax professionals (including CPA firms) bungle suspended passive losses.

2. A client recently brought me her self-prepared Schedule E for review and I didn't find an error on it. First time this has ever happened. 

@Jim Walters describes my (one-and-done) personal experience with a CPA firm. Not all CPAs are like the CPAs on BP, so choose wisely, or at least better than I did! (But it did facilitate a nice career change for me!)

@Mark Richardson The tax pros on BP are all 'online capable'. Tax pros not on BP - not as much. The IRS imposes stringent standards on digital information security, and not all tax pros are willing to deal with them. (Ironic given the number of security breaches at the IRS, but that's another story.)

@Michelle Eisenberg my cousin used to work at H&R Block. She had trouble holding a job most the year and it was only during tax time she had steady work. She was not a CPA and no accounting degree. She went through a four our training session and was hired at H&R Block. She was hardly qualified to manage complex taxes, let alone deploy any advanced tax strategy. 

A good CPA will pay for themselves in tax savings and reduced risk of tax problems. I am a big DIY guy, but I can tell you taxes (beyond W2 only income) are too complicated for most people to do a good job. 

If you are going to do the taxes yourself, have a CPA do them the first year or two after owning rental property. Go through the forms step by step and learn how they do it, then take it on only after understanding how it works.

@Michelle Eisenberg Hi Michelle, As a CPA I lean towards going with a CPA. I’ve had clients come from H&R Block and their fees tend to be fairly similar, if not more than, to what A CPA would charge. Be sure to interview your tax preparer. You want someone who stays current on all tax matters and someone who specializes in what you’re looking for. If they are familiar with a state you invested in, they may not be the right fit. Keep in mind that their hourly rate might be more, but they will also spend less time than your average CPA. Good luck on your investments!

@Michelle Eisenberg Obviously, I am biased, but CPAs (just like other service professionals) are worth their weight in gold. As a few posters above have mentioned, you can get away with preparing your own taxes with a couple of rental properties; once you start scaling and growing your portfolio, it's time to outsource to a qualified professional.

Not only does this (hopefully) give you some level of comfort and security, but it will free up your time and allow you to unload certain responsibilities and focus on building your business.

Good luck with your search! :)

When looking for a CPA, you should certainly perform your due diligence to ensure that they're actually capable of delivering value. BP active CPAs are all real estate focused and should be strong candidates.

You've got to strike the right balance between service and cost. Don't step over dollars to get pennies; i.e., a good CPA will be invaluable in keeping you in the good graces of the IRS while saving you money.

However, (a) don't overpay for an overhyped CPA and (b) pursue only tax strategies that are appropriate for your level of RE investing.

I would recommend that you speak to more than one CPA prior to making a decision. BP member @Daniel Hyman  may be a good fit.

@Bernard Reisz Thanks for the suggestion. I'll definitely look into Daniel Hyman. Based on what you said as well as the suggestions from @Paul Allen , @Michael Plaks , and others, I will start reaching out to CPAs on BP to learn more and hopefully find someone for this tax season. 

Thank you to everyone who has taken the time to answer my question. I feel much more confident now that the value I will gain from working with a great CPA will be more than worth the money I will pay. 

Although I doubt I will end up a tax expert, I am also interested in learning more, so I also plan to take @Dave Toelkes  and @Joe Splitrock advice and do a mock up of my taxes myself at the same time so I can compare. That may also help me think of questions that didn't occur to me before. 

It also hadn't occurred to me before posting that I could work with a CPA who isn't local to me. Thank you to everyone who pointed out that many BP tax pros offer Skype rather than in-person meetings that make it possible to really find a great tax pro rather than settling for someone who happens to be within easy driving distance.