Rental Property Investor · Enterprise, AL · Member since 2019 · 137 posts · 85 votes
QUESTION: Is $2684.25 a reasonable price for CPA to file personal Federal and State tax returns which included 3 sole-member LLCs, all used for operating multifamily REI properties?
BACKGROUND: Last year, my wife and I decided to go with a recommended CPA. Since we started our REI business and we're starting to own more property, we thought having someone a tier or two higher than H&R Block would be a good idea.
So we had them file our taxes for the previous year in which I was the only one working, wife is home with kids, and we hadn’t bought any real estate or formed any LLCs. Just a simple return. Something we could have done on turbo tax for $39.99 or paid $229 to H&R Block to do (both of which we have done previously).
Before we went with this CPA, they were very transparent about being on the higher end of services. Well, the CPA did get us a larger than usual return, but also sent a bill for $900. I guess my wife and I were thinking higher end might have been $500-600 or so we were a little shocked it was so high for just a simple return.
From that point on, we asked that they let us know upfront about how much services would be so we can better budget for them. I specifically asked how much will the bill would be this year given that we formed an operating LLC and two LLCs for banking purposes for the two multifamily properties we bought in 2019. On three separate occasions, we were told it would not be more than $2000 total.
Side note: Throughout the year, I emailed a couple of questions, which I was told (after receiving a $575 bill) that each question required a couple hours of research and work to get a “detailed and factual” email response back to me. After that bill, I pleaded that they inform us of what the cost of services would be for any work they would need to do and to let us know BEFORE so we could choose if we wanted to proceed or not. Then, I again getting worried asked about filing tax returns and asked if they would still be $2000 or less, and was led to believe that “yes, that about what’ll be”.
Well, we got a bill for $2684.25 and my wife said we are moving on from this CPA and finding someone else who “won’t charge us $575 to answer a couple of email questions”. To be frank, I agree with here.
Alright BP community, sorry for the novel, but are we being ridiculous? Is this a typical cost for these services? Any feedback would be greatly appreciated!!
Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
Seems like you already know the answer to this question @Heath Jones - being expensive and having opaque billing practices are two completely different things. Its fine that they're expensive as long as you get good value for what you're paying - the problem is you have no idea what you're going to be paying, no idea what is a billable hour and what isn't, and they're telling you one number then billing you another. In any and every business this is unacceptable and warrants finding a new CPA.
What does the engagement letter say? What is the scope of work? If they didn’t give you an engagement letter than shame on them. I don’t know what questions you asked so I have no idea whether research was required or not. As for tax preparation fees, it is difficult to say. Fees are very dependent on books and records. If your books and records are good then maybe that is a little high but if your books and records are bad, then that is not high.
It has been posted here a few times but the NATP (National Association of tax preparers) releases an annual survey of pricing for various services.
I think the Average for a 1040 is like $400-500 - so keep in mind that's an average that includes big cities, and also what people are charging in tiny towns.
So high end firm is going to be higher than that. The first firm I worked for in a high end Seattle area our base price was $800. But we also did a lot of really complex work, and the deal was pretty much that we'd never had a client lose an audit because we confirmed/tied down a lot more than many firms do. Basically more time per return vs. high volume lower price.
Any how it's all relative. I think that price sounds high- but also don't know what was provided to them, if there was any thing else involved like a 1031 exchange or 3115 ect- there are lots of variables. It's a pretty big jump from prior year for sure, and I would expect them to hold to their provided range of not over $2k too (like I said unless there's a curve ball we don't know about)
There are excellent tax pros here on BP- reach out to some after tax season and get a second opinion and potentially find a new professional to work with.
@Heath Jones how many properties do you have? Realistically sounds high. Also unless you’re asking super complex questions, charging for email answers a couple times of year also seems high
I agree - if they are unable to stick to their original number, they either need to support what additional work was done, or just take it on the chin and write off their time. The price you were charged may or may not be unreasonable. Have a conversation with them - they make back off on the billing, especially if not work outside the scope of the original agreement was discussed.
You're paying for a professional at the highest caliber. Do you know how difficult it is to become a CPA?
1. BS in Accounting- $40,000 & 4 years.
2. Masters in Accounting- $30,000 & 1-2 years.
3. Working behind a cpa for 1 year.
4. Study materials- $3000 & 1 year studying.
5. Passing an exam that 50% of people fail which can take another 1 year.
In my opinion, people who have a cpa license shouldn't work with clients for the typical $250-$500 fee. They should be working with high end clients and charging $1,000+ along with a monthly tax planning, bookkeeping and payroll fee.
I know a guy who has 60 units and pays his CPA $25,000/year for tax planning, bookkeeping and tax preparation. He can afford it though with 60 units. That CPA probably has a million dollar firm. The big bucks come from packaged monthly deals, not just taxes.
QUESTION: Is $2684.25 a reasonable price for CPA to file personal Federal and State tax returns which included 3 sole-member LLCs, all used for operating multifamily REI properties?
BACKGROUND: Last year, my wife and I decided to go with a recommended CPA. Since we started our REI business and we're starting to own more property, we thought having someone a tier or two higher than H&R Block would be a good idea.
So we had them file our taxes for the previous year in which I was the only one working, wife is home with kids, and we hadn’t bought any real estate or formed any LLCs. Just a simple return. Something we could have done on turbo tax for $39.99 or paid $229 to H&R Block to do (both of which we have done previously).
Before we went with this CPA, they were very transparent about being on the higher end of services. Well, the CPA did get us a larger than usual return, but also sent a bill for $900. I guess my wife and I were thinking higher end might have been $500-600 or so we were a little shocked it was so high for just a simple return.
From that point on, we asked that they let us know upfront about how much services would be so we can better budget for them. I specifically asked how much will the bill would be this year given that we formed an operating LLC and two LLCs for banking purposes for the two multifamily properties we bought in 2019. On three separate occasions, we were told it would not be more than $2000 total.
Side note: Throughout the year, I emailed a couple of questions, which I was told (after receiving a $575 bill) that each question required a couple hours of research and work to get a “detailed and factual” email response back to me. After that bill, I pleaded that they inform us of what the cost of services would be for any work they would need to do and to let us know BEFORE so we could choose if we wanted to proceed or not. Then, I again getting worried asked about filing tax returns and asked if they would still be $2000 or less, and was led to believe that “yes, that about what’ll be”.
Well, we got a bill for $2684.25 and my wife said we are moving on from this CPA and finding someone else who “won’t charge us $575 to answer a couple of email questions”. To be frank, I agree with here.
Alright BP community, sorry for the novel, but are we being ridiculous? Is this a typical cost for these services? Any feedback would be greatly appreciated!!
I used CPA's for my businesses over the last 40 years, including doing personal returns with schedule E for rentals, LLC's for an active business, S Corp, C Corp for another two, on Federal and State levels. He had charged me up to $400 on the personal, $250 for the LLC and K1's, $250 each for the S Corp and C Corp. From what I'm told, it's not particularly high or particularly low, just an average rate. At one time, when he had to handle other matters for the active business, such as unemployment insurance, workman's comp, he charged me $175/month fixed to handle, with a reduced year end fee for the LLC, and for the fee, he'll answer whatever questions I have during the year, and do a few filings for payroll taxes. For this, he won't charge me extra if the IRS or tax authorities gets after me for errors in the event of an audit.
Another issue you mentioned is you went to him just last year. For the initial year there's a lot more work, from transition to your system, either Turbo Tax, or H&R Block, and some CPA's charge extra, some not. When I bought a business, I was to transition to the CPA handling the business the seller was using, and have him do my personal taxes as well. My CPA charged $400 for my personal return, and the new CPA charged $800, almost $1,000 with additional charges. No big deal if done right. I filed for extension that year, the new CPA prepared my personal returns in August then went on vacation. When I reviewed it, it was all wrong. I did rentals for almost 10 years at that point, six properties, almost 50 depreciation accounts among them, and he did them all if I just acquired it, starting from zero. So I called him, told him I gave him the prior years tax returns, with amortization tables, and as I did with the previous CPA, gave him new accounts to add to it, and do amortize the others for another year. But he and his son, both partners in the CPA firm, said they'll get to it when they return from vacation. another month. What to do? I asked my old CPA if he can do the return, which he did, done right, billed me $400, and submitted them. The new CPA came back from vacation, and wanted to know when I'll pay his $800 bill. Told him, I didn't use his return, paid the other guy $400. He said his employee did all the work and deserves to be paid. So I proposed to him if he is in need of the $800, I will pay it so long as he corrects his botched return, send it to me, I'll compared it to the correct one I already submitted, and I'll just file it in my files, and pay him. He refused, saying it's an insult, the fact I didn't use his return, I'm throwing it in the garbage.
BTW, the did all the bookkeeping, using QuickBooks, the CPA's are not involved. I have an MBA in finance which includes accounting courses.
I finally sent him $400 to shut him up. Did I do the right thing??? In return, he answer is he no longer wants me as a client. Sighhhh!!!! Sorry for the long story.
Did I handle it right?? I wondered about it through the years.
Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
Seems like you already know the answer to this question @Heath Jones - being expensive and having opaque billing practices are two completely different things. Its fine that they're expensive as long as you get good value for what you're paying - the problem is you have no idea what you're going to be paying, no idea what is a billable hour and what isn't, and they're telling you one number then billing you another. In any and every business this is unacceptable and warrants finding a new CPA.
Thank you so much for all the feedback and comments. It is very much appreciated. Answers to common questions in the comments. In 2019, my wife and I bought a 4 plex (in FEB) and a 16 unit (in MAR). We originally formed what has become our operating LLC, but then formed one LLC for each property for banking purposes. There were no 1031 exchanges; however, we did cash out my 401K with my previous company to buy the 4 plex. We ended up getting ~36k with 6k being withheld to cover the tax penalty. The 16 unit is owner financed.
@Lance Lvovsky
The engagement letter states the scope of work would include the preparation of 2019 federal and state returns from the information I furnished to them. They will NOT audit or otherwise verify the data I submitted to them, they do NOT perform procedures designed to discover irregularities, should they exist. They will render such accounting and bookkeeping assistance as determined necessary for the preparation of the income tax returns.
In October of 2019, I asked for a review of my tax situation to make sure I was still on track with my federal and state withholdings, because I wanted to make sure I wasn't going to owe money as a result of cashing out my 401K. So I understand being charged for the hours it took for that service.
As far as my books and records, I use Quickbooks and my account is linked to all my business accounts and credit cards. I also use Rentec Direct for bookkeeping for all the rental P&Ls. I keep extremely detailed notes and comments, and I sent all the summary reports that were asked of me.
@Natalie Kolodij
This is why my wife and I were OK with moving to a higher-end firm because we are proponents of paying for quality. However, after reviewing the engagement letter, it does not appear that my firm "confirmed/tied down a lot more than many firms do". No 1031 exchange or 3115, so I do not believe there were any curveballs. It was all pretty straightforward, P&Ls from the operating LLC (which had all the information for all the business entities) and then separate P&Ls for the two properties. I will certainly reach out to CPAs on BP, and have already had a few get in contact with me. Thank you so much!
@Daniel Hyman @Caleb Heimsoth
One operating LLC, and one property in each of the other two LLCs. I think the books were clean. Basically, the books were tracked and updated using Quickbooks and rental management software. I'm extremely diligent, so I don't know how I could have made them any cleaner. No other complexities. Just a W2 and then all the Schedule E stuff.
I do not believe I asked complex questions. I did ask for a 3/4 year review and the other question was about the tax implications for a potential seller of a large MF property if they were to reinvest a portion of the sale as a passive investor with us, the potential buyers.
I tried calling twice today, but I was not able to get a hold of them. They are a reputable firm with several locations around the country, and I really like my CPA. But I am not going to keep working with someone who tells me one thing and then does something else. I will post after I speak with him for the benefit of anyone following this post. You all have been great. Thanks!
I’m not sure why my response didn’t tag you all. Look above (or below?), I responded to all your comments/questions. Thank you so much for your feedback. Any additional recommendations after reviewing the new information I provided would be greatly appreciated. I will keep the post updated for anyone who is interested. Take care and stay safe!!
I have had the same CPA for 30 years; before that it was his father for about 5 years. The IRS has made inquiries about my returns a couple of times, each time the CPA has sent them a stern letter in return and taken care of things. I get tax and business advice through the year, and when I had my own business he filed my corp return as well for 20 years. It is a relationship I rely on. You are not going to get that from H&R Block!
The topic says "Should I fire my CPA?' but your opening sentence questions his pricing. Are you saying that if he charged you half or third of that you would not consider firing him?
I always tell investors who ask me the should I fire my CPA question to look at 3 areas:
is he competent/knowledgeable?
is he delivering good results?
is he providing good service?
Everything else, including pricing, is less important and should not be a reason to switch.
Expecting your professional accountant to answer questions via email for free says all that needs to be said. This is a you problem, not a them problem.
I want to know how to pay as little as possible income tax however still maintain enough loan eligible income to get financing. Or is this not possible?
I want to know how to pay as little as possible income tax however still maintain enough loan eligible income to get financing. Or is this not possible?
This is possible if you hold a cash-flowing rental portfolio and use aggressive depreciation which lenders add back for underwriting purposes. Not really possible if your income is mostly from Realtor commissions, wholesaling or flipping.
Better yet, rely on asset-based lending like private money as opposed to income-based lending like banks.
You make a great point. For me, the question in regards to pricing is important to whether I chose to fire the CPA. This is because I was specifically told on three separate occasions by the CPA throughout the year that it would not cost more than 2k, then I get a bill for ~2700. Understanding whether this is a reasonable price is critical to my decision to work or not work with someone who does not hold to what they’ve told me.
For example, if the feedback I would have gotten from the BP family was that this was an extremely low cost and that work of this kind is typically on the order of something much higher, like 3-8k, then a $700 increase (despite telling me one thing and doing another) may make more sense given this context.
However, given that this is not the case and most feel this is on the more expensive end, then the lack of transparency is concerning no matter how great of a CPA he is.
@Kris H. It’s not about getting an emailed question answered for free. I understand what a consultant business is and that time/advice are their services. It’s about asking the BP community whether or not I’m being overcharged for this service, which is one of the great things about having a platform such as this to turn to when you want to make sure you’re not being taken advantage of.
This is also about asking the question... if they are going to charge me to answer the email, is it not reasonable for me to expect them to let me know how much it will cost and let me decide if I really want to proceed with getting that question answered at the price they are quoting BEFORE they use their time and bill me? Thank you for your comment.
@Heath Jones is like to know the nature of the tax questions they charged you $575 for. My CPA answers a few questions for me free as part of his tax prep fee. Does this CPA really need to “research” these questions or should he know them?
@Heath Jones Looks like your question is more whether your business requires 3k worth of accounting/tax services per year. It seems like when you build a “team” they often feel entitled to a percentage of the profits over an hourly wage even without a monetary investment. I will say, my extremely competent sister in law attorney, partner, super busy, charges $250 hour or so. And I wonder how complex your question was to need 2 hours research by super star accountants. Were you expecting a quick off the cuff response? I have gotten great pointers on the phone from receptionists who have seen the same thing over and over....not accountants, but law (and the tip was right on, very helpful) and appliance repair. Anecdotal true , and I don’t think you should expect free advice from paid advisors. But maybe high prices should come with some sort of perk like a phone call during the year.
For one of the questions, it was a 3/4 year review in October which probably required an hour or so of his time. The second question was in reference to the tax implications assumed by a potential seller reinvesting a portion of the sale as an LP in the deal.
I figured these questions wouldn’t take too much time and was expecting a quick, “yeah you’re still good like we discussed at the beginning of the year” and a, “no, I wouldn’t tell the owner he would save on taxes by reinvesting with you because it doesn’t make sense to do so.”
Like I’ve said in above posts, I don’t mind paying for the time and advice, but if I’m paying close to 3k, it would be nice to know beforehand that I will be charged if they answer my questions. Then I could decide if I want to pay fo that answer or if it is really that important to find out. Thanks for your response.
Sounds like you missed my point. $2,700 may be high and it may be low. We really cannot tell. All the answers about "but my CPA charges me XX" are pointless - their situation, needs, and services are different from yours. Not apples to apples.
The 3 factors that I listed is what matters the most, and should come BEFORE price. Nobody needs a dirt cheap work if the results are trash. (Well, some investors would settle for that, actually.) And people who check all 3 boxes that I mentioned are very rare, so they command and are worth a premium.
I'm not saying the price is not important, I'm saying it's not the deciding factor in firing a professional. You might have a great CPA, and the only issue is miscommunication about their billing practices - which should be easy to discuss and address. If, on the other hand, he is undercompetent, produces bad work or bad service - then he might need to go.
