Use TurboTax or hire CPA?

Question

I've always used TurboTax for my taxes. Been acquiring rental properties over the last 3 years and still get by with TurboTax. The time commitment is not an issue with me, but I certainly would be open for hiring a professional if the expense was worth what I would get in a return. I keep good records of all expenses/income from my rental properties, and it seems like Turbo Tax walks you through where to enter all the data, and generates your return from that. I'd like to get opinions here on tax deductions and elections that I could be missing by using Turbo Tax, get an idea on the cost/benefit of hiring a professional, and decide if the cost would be justified in the additional return I would be receiving.

Also, my next audiobook will be the BiggerPockets tax strategies book. Curious to hear from people who have read it and how eye opening it was as far as deductions they learned about that they never knew about previously.

Thanks for all insights.

Also, my next audiobook will be the BiggerPockets tax strategies book.  Curious to hear from people who have read it and how eye opening it was as far as deductions they learned about that they never knew about previously.

Thanks for all insights.

Eamonn McElroy · Answer

From personal experience reviewing prospect tax returns that previously DIYed, it's not what they're missing...it's what they're doing.

Claiming RE pro and taking rental losses as non-passive even though they have a full-time W-2 job.

Flushing a major renovation through as "repairs".

Reporting "landlord overhead" expenses on Sch C and taking them against earned income.

Depreciating STRs over 27.5 years and taking active participation loss allowance on them.

Etc.

"It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So."

Michael Plaks · Answer

Browse the forum, and you will see contributions from 20+ tax professionals specializing in real estate. Hint: a few of them/us replied to your question.

Josh Darley · Answer

Ben,

You and I are in a similar situation.  I have three SFR rentals that I've owned and self managed over the last three years and have had no problem filing the taxes myself with turbotax.  It seems very straightforward to me, although I constantly hear about the benefits of using a CPA.  I understand CPA's do this for a living and should be able to find enough tax breaks to offset the additional costs.

On the other hand, the stories I've heard of people who were previous turbotax users whom eventually decided to use a CPA were missing out on only the basic of all deductions, credits, or expenses (blatant and simple mistakes in my opinion).  I have yet to hear of a key expense or credit that I was unaware of or that turbotax didn't ask for.

This year will be more complex than the last as we had a couple flips and are in the process of acquiring a few more properties.  I am tempted to use a CPA to what benefits they have to offer, but on the other hand I am tempted to save some cash and do it myself.  I'm curious to hear what others have to say and what you eventually decide.

Josh

Kevin DeVargas · Answer

I always tell my clients “If it doesn’t make dollars it doesn’t make sense”. My cost should pay for itself. Turbo tax is a great reactive program, meaning that it helps you with last years taxes but it cannot help you proactively plan in the current year nor does it create tax strategies.

Example. An accountant friend sold a property and made 100K in revenue. Her taxes were done correctly but she had to pay 30K in taxes and an extra 10K in personal taxes that's 40K in taxes. The taxes were prepared correctly but… She did not plan or have a strategy that could have eliminated or deferred the whole tax debt.

Not knowing cost her $40,000. I hate to hear these stories when it could have been avoided and love to help others get the most out of their investment.

Kory Reynolds · Answer

Having a good accountant can be a powerful tool. Turbo Tax is data input, not guidance and advice. It will have no problem letting you expense things you shouldn't, make elections you aren't eligible for, or not suggest elections or strategies you are eligible for. Also, it is a cost of keeping you compliant with the law - keeping you out of trouble saves you money, even if it isn't an extra dollar in your pocket now.

Easy example...guy came in a few weeks ago asking us to do his 2019 returns, we ask to take a look over his 2018 returns. He DIY'd with the 'help' of an accountant friend. This guy was clearly a qualified real estate professional but didn't code his properties as such. All his deductions/income/credits were correct. Sold a few properties at a gain and incurred $15k in net investment income tax, which he dutifully paid. We are now doing an amended return to get his $15k back.

Another one - an investor who was having H&R Blocks prep service do the return. Did a perfectly good job on data input, but missed about 50 foreign disclosures required from his K-1s and 10 other states he should have been filing in. Maximum penalty for all these failures to disclose would be in excess of $250k.

Keeping you in compliance IS saving you money, even if it costs money in the now to do so.

Ben Kirchner · Answer

Would certainly be interested in any recommendations from investors for tax professionals.  Would like to discuss this further with a professional.

Adam Rasmussen · Answer

@Ben Kirchner I am very biased but I believe a CPA should be able to pay for themselves. If you are used to TurboTax you may get some sticker shock but a perfectly reasonable question to ask your CPA is "where did we save in taxes?" The answer should come out to that the tax savings are more than what the fees are for the CPA.

With new clients I typically like to be up front with those kinds of things. Especially those that are transitioning from the self-prepared services to a professional.

Another good thing about a CPA is having someone on your side to bounce ideas off of. The value is in the tax return so that is where our price is high but the questions throughout the year are not billed. I actually enjoy those conversations with real estate clients, to be honest.

I have started that book myself and before reading I was confident I wasn't going to find much value but I am a few chapters in and am learning a bit. Not so much about the law but the approach to the law for the most part. Looking forward to finishing the book as well as checking out the updated version.

Good luck!

Use TurboTax or hire CPA?

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