At what point do you need a tax strategy?

10 Replies

Last year I had a W2 job, making the median income in my area and owned a house hack I had just bought. I hired a CPA but there was no tax strategy or planning and I probably could've saved the money and used turbo tax. I'm not sure if this was because he wasn't a great CPA or if it was because I wasn't yet at the level to need one. Fast forward to this year, my airbnb house hack has had a full year of operation, I've doubled my W2 income, and I bought a rental house. Im also doing some 1099 side work for a local realtor. Is there an income threshold or complexity of income where your CPA will then need a strategy to help you save money on taxes? Or tell me if I should run my 1099 thru an LLC or not?

IMO, that strategy would have ideally been in place right when you started the Airbnb house hack. Congratulations on doubling your W2, that is not an easy thing to do.

Again, in my opinion - it's time. If you continue on your current trajectory your taxes will only get more complicated. Look for CPAs who specialize in working with real estate investors. Good luck!

@Jacob D Adamczak

Once the new year rolled around, the ship set sail for 2020 tax planning. At this point, its about getting a compliant tax return and one that you can feel confident providing to lenders for additional acquisitions. And that is actually a big deal. 

As far as 2021, its a great time to link up with a tax strategist that can help boost your tax savings and provide advice on the entity structuring.

@Jacob D Adamczak

At what point do you need a tax strategy? At the point when the lack of such strategy starts hurting. Until it hurts, you will continue thinking that the money paid a CPA could have been "saved."

In order to do tax planning, you need to know your plans. Did you know that you would double your W2 income, start a side gig with a realtor and buy a rental? If these developments were not expected, no CPA could have devised a helpful tax plan for you. If these developments were expected, and no tax planning was discussed, then your relationship with your CPA failed to deliver. I don't know whose fault it was. With your current situation, there's certainly room for some planning

If you're confident in your CPA's competence and service, discuss it with him ASAP and start planning for 2021. If you are not so sure, then try to quickly get a second opinion on the work your CPA did for your 2019 taxes. Don't wait, as most of the accountants are either already swamped for the current tax season or about to.

Jacob, 

I recommend finding an accountant that specializes in real estate taxation and tax planning. You may want to consider working with your accountant remotely to expand your options.

I would also recommend looking for a tax strategist who is willing to work with you throughout the year, not just when preparing your tax return. You want an accountant that can help you strategize and who is responsive when you want to know the tax consequences of the decisions you are making throughout the year.

Good luck and let me know if you have any questions.

@Daniel Hyman I know there isn't an exact answer to this but I'm asking because I hired a CPA last year and didn't get any tax advice.  I asked about deductions (education, home office, donations, etc) and my real estate goals and he said just to take the standard deduction.  This is why I'm asking, was I just to new to real estate and not making enough money to require a more thorough conversation?  Would I be past that point now?  Or is there always some bit of strategy that can be employed and I should reach out to someone else.

@Michael Plaks   I did expect to buy a rental and do expect to buy a few more this coming year, in addition to a flip, and potentially some wholesaling if my marketing efforts are more successful than the amount of deals id take down.  I didn't expect my W2 to double or to take on the additional side work with the realtor.

I appreciate the feedback and think that I will reach out and get a second opinion and make sure that I can game plan for the future.  I'm not opposed to spending money for value (and clearly I'm not up to date on what tax strategies are out there) just felt I paid for no value last year.

@Jacob D Adamczak

Though I'm not a CPA, I would like to think this scenario should be a cakewalk for someone with even moderate experience. I am fortunate to have someone with 45 years experience which only came through a referral. Is there anyone you know in your area with similar goals that could refer you?

@Brandon Lee Turner Yes, I do know someone locally I can reach out and have had 2 DM's from the commenters above for the WHO I will use.  I just didn't want to spend the extra money again just to be told to take the standard deduction again, if my taxes are that easy I'd just go to turbo tax. But if there is room to work with to save me money and plan for the future id  happily pay someone to help.

@Jacob D Adamczak I started with a CPA right away because I didn’t want to miss any deductions on the personal or business side-and in the (admittedly) unlikely event I get audited, I want a tax professional on my side that is already familiar with my situation. The price is it worth it to me.

It also helped me treat the business like a business.